Purchasing life insurance is a pivotal yet complex decision for Canadians seeking to protect their families’ financial futures. So, how to buy life insurance in Canada? Our guide will walk you through the essential steps, considerations and strategies for buying the right life insurance policy in Canada tailored to your unique needs and budget.
Step 1: Determine How Much Coverage You Need
The first step is calculating how much life insurance you should buy. This involves estimating your family’s financial needs and expenses in case of your unexpected death.
Here are 5 key factors when determining your ideal coverage amount:
Income Replacement
A primary purpose of life insurance is to replace your income in case of death. Consider how much of your income is protected by insurance and is contributed to monthly household expenses and other financial goals.
You’ll want enough coverage to continue funding these priorities for your dependents for 5-10 years or until major milestones like paying off a mortgage or funding education are met.
Debt Payoff
List any outstanding debts like mortgages, car loans, credit cards, personal loans, etc. Your life insurance benefit should be enough to pay off all these debts, so your family isn’t burdened.
Final Expenses
When planning your life insurance coverage, don’t forget to include final expenses such as funeral cost, burial, or cremation costs for both you and your spouse.
In Canada, these costs can easily start at $10,000 and may be higher depending on the type of service, location, and additional arrangements.
Family Living Costs
Consider regular living costs like groceries, utilities, transportation, childcare, etc. Your family may need coverage to maintain their lifestyle for several years.
Education Funding
If you have kids, ensure enough coverage to fund their future college/university education fully.
Tuition, books, housing, and other related expenses can quickly add up over the years. Including education costs in your life insurance plan can help secure their academic future, even if you’re no longer around to support them.
To simplify your estimate, you can use the DIME method, which stands for:
Debt Payoff + Income Replacement x Years Needed + Mortgage Balance + Education Funding
This gives you a rough estimate. An online life insurance calculator can also help determine the right amount.
Step 2: Choose your Types of Life Insurance
Once you’ve determined the amount of coverage required, choosing between term life insurance and permanent life insurance is the next big decision. Each option has its own benefits, depending on your goals, budget, and how long you need coverage.
Term Life Insurance in Canada
Term life insurance offers protection for a specific period, or “term,” such as 10, 20, or 30 years. It’s designed to provide a death benefit only if you pass away during the term.
- Provides pure death benefit protection for a set period or “term”
- Typically available for terms of 10 to 30 years
- Premiums start low when you’re young but increase as you age
- No cash value accumulation
- Appropriate if you need temporary coverage
Permanent Life Insurance in Canada
Permanent life insurance covers you for life, as long as you continue to pay the premiums. It also includes a savings component that builds cash value over time.
- Provides lifelong protection as long as premiums are paid
- Builds cash value that you can borrow against or withdraw
- Premiums are fixed and don’t increase
- Types include whole life and universal life
- Suitable if you want lifelong coverage
While term life insurance is more affordable when you’re young and healthy, permanent life insurance becomes cost-effective as you get older, especially if you need lifelong coverage.
That said, term life insurance is a good choice if you need temporary coverage for things like final expenses or paying off debts. On the other hand, permanent life insurance is better suited if you want lifelong protection into retirement and value the cash accumulation.
Step 3: Research and Compare Life Insurance Companies in Canada
Once you decide between term vs. permanent coverage, it’s time to start researching insurers. Look for companies known for strong financial ratings and customer satisfaction.
Some top life insurance companies in Canada include:
- Sun Life
- Manulife
- Canada Life
- RBC Insurance
- BMO Insurance
- Industrial Alliance
As you research, you should compare factors like:
- Financial strength – Check ratings by A.M. Best, Moody’s, and S&P. Stronger ratings mean a lower risk of the insurer going bankrupt.
- Policy options – Consider flexible options that meet your needs, like term lengths, coverage terms, and conversion options.
- Riders offered – Riders enhance your base policy, like disability waivers, return of premium, and critical illness riders.
- Customer service – Review reviews and complaints data to gauge customer service experience.
Then, create a shortlist of 2-3 reputable insurance providers offering the features you want.
Step 4: Get Life Insurance Quotes in Canada
Once you’ve researched your options and shortlisted a few providers, the next step is to get rate quotes. This will help you compare policies and find the best fit for your needs and budget.
Life insurance quotes are personalized based on factors like:
- Age
- Gender
- Nicotine use
- Medical history
- Family medical history
- Lifestyle and hobbies
- Occupation
There are several ways to get life insurance quotes in Canada:
- Online: Visit insurer websites and use quote calculators. You’ll have to enter basic personal details.
- Agent: An independent life insurance agent can provide quotes from multiple companies.
- Direct: Contact insurers directly by phone or online chat to get quotes.
- Broker: A life insurance broker can also source quotes from various providers. You must read this article if you want to find the best life insurance broker in Canada.
Get quotes for term and permanent policies from 2-3 shortlisted providers. Compare them in terms of premiums, coverage amount, exclusions, etc.
Step 5: Complete the Life Insurance Application in Canada
Once you decide on an insurer and policy, it’s time to complete a full application.
Here’s what the application process typically involves:
- Fill out a detailed application with personal/financial information.
- Provide your medical history, including doctor’s details, prescriptions, and medical test results.
- Share lifestyle facts like alcohol use, smoking, hobbies, driving record, etc.
- Authorization to access your medical records.
- Review and sign the completed application.
The life insurance application may be completed online or over the phone for no medical exam policies.
Otherwise, an in-person application with a paramedical exam will be required.
Step 6: Schedule a Paramedical Exam
Many life insurance policies require a paramedical exam before approval. This checks your current health status.
Here’s what to expect during the exam:
- Basic vitals like blood pressure, pulse, and height/weight measurements.
- Blood and urine samples testing cholesterol, kidney/liver function, etc.
- Medical history questions.
- ECG/treadmill tests are performed if you have any medical conditions.
The exam is conducted by a nurse/technician hired by the insurance company. It takes about 30-45 minutes, and the insurer covers the cost.
Not all insurers require an exam. No medical exam policies have higher premiums but faster approval.
Step 7: Await Application Review and Approval
The final step in the buying life insurance process is to await your application review and underwriting decision.
During this stage, the underwriter will:
- Review your application details, medical exam results, if applicable, and any medical records.
- Assess your life expectancy and risk factors based on the data.
- Determine policy eligibility and finalize premiums.
The underwriting process can take 4-6 weeks. You’ll then receive either:
- Approval – An approval package with your policy documents. Sign and return documents and pay your first premium.
- Decline – A letter stating you’ve been declined coverage and the reasons why. Consider re-applying after 6-12 months if the reasons were temporary.
- Rated Policy – Approval but with higher premiums due to higher risk factors. Typical for medical conditions like diabetes.
That covers the complete step-by-step process for purchasing life insurance coverage in Canada.
Additional tips for saving on your policy:
- Apply when you’re young and healthiest, as this helps you lock in lower rates
- Choose a longer-term policy to secure lower premiums for longer.
- Improve health and lifestyle habits to qualify for discounts.
- Bundle your policy with other insurance products from the same provider.
- Pay premiums annually rather than monthly to reduce costs.
And remember to review and update your coverage every few years as your needs and finances change!
Frequently Asked Questions Related To How to Buy Life Insurance in Canada
What medical tests are required when applying for life insurance?
Standard medical tests insurers may require include:
- Blood and urine tests to assess cholesterol, kidney/liver function, nicotine use, etc.
- Blood pressure, heart rate, height and weight measurements.
- An electrocardiogram (ECG) is used to check heart health.
- Treadmill stress test if you have cardiovascular conditions.
- Cognitive/memory tests if applied at older ages (60+).
What steps can I take to get lower life insurance premiums?
Tips to reduce your life insurance costs include:
- Maintaining a healthy weight and managing any medical conditions.
- Exercising regularly and eliminating tobacco use.
- Choosing longer policy terms (e.g. 20 or 30 years).
- Getting coverage before age 50 when rates increase.
- Purchasing a bundled home/auto/life insurance package from the same insurer.
How long does life insurance coverage last?
Term life insurance covers a set term length, such as 10, 15, 20 or 30 years. Permanent life insurance policies provide lifelong protection if you continue to pay premiums.
Can I buy life Insurance without a medical exam?
Many insurers offer simplified issue or guaranteed issue life insurance that doesn't require a medical exam. Approval is faster, but premiums are about 50% higher on average.
When should I buy life insurance?
The best time is when you're young and healthy, as premiums will start low and increase as you age.
