Purchasing life insurance is one of the most critical financial decisions Canadians can make to protect their families. However, premiums ranging from hundreds to thousands of dollars per year can also be a significant expense.
The good news is you can leverage the seven proven strategies below to reduce your life insurance costs without compromising coverage.
Strategy #1: Shop Around and Compare Quotes
One of the most effective ways to save money on life insurance is to thoroughly compare the market. Insurance premiums can vary significantly between different companies for identical coverage, as each insurer uses its own set of calculations (called underwriting) to assess your risk.
When getting quotes to compare, provide the same information to each insurer to analyze rates accurately on an apples-to-apples basis. You will also want to evaluate each insurer on financial strength, customer service, and claims-paying reputation. Independent rating agencies like A.M. Best rate life insurers on their financial stability to assist you in choosing a reliable provider.
There are three main ways to buy insurance:
- Captive Agent: Works for a single company. They can only sell you their company’s products.
- Direct Insurer: Companies you contact directly, often online. You are still only seeing one price.
- Independent Broker: A licensed professional who works with dozens of insurance companies. Their job is to shop the entire market on your behalf to find the best policy and price for your specific situation.
Our advice: For the vast majority of Canadians, an independent broker is the key to unlocking the biggest savings. They know which insurers are most favourable for specific health conditions, hobbies, or age groups.
Strategy #2: Select the Right Types of Life Insurance
For most Canadians, the primary goal is income replacement and debt coverage (like a mortgage). For this, term life insurance is the most cost-effective solution. You pay lower premiums in exchange for coverage for a predetermined period, typically 10 to 30 years.
With permanent life insurance (whole or universal), you are covered for your entire life. It includes a savings or investment component that grows over time, often tax-sheltered. While premiums are much higher, it can be a strategic tool for:
- Estate Planning: Providing liquidity to pay capital gains taxes on cottages or investment properties.
- Business Succession Planning.
- Leaving a guaranteed legacy or charitable gift.
Saving money isn’t just about the lowest premium today; it’s about not paying for coverage you don’t need. Do not let an agent upsell you on a complex permanent policy if your needs are temporary.
Strategy #3: Lock In Rates Early
When you first purchase life insurance coverage, your age significantly impacts premium costs. Insurance companies calculate rates based on life expectancy. Adults in their 20s and 30s are statistically much less likely to pass away than those in their 50s and 60s. By locking in a rate early, you secure a lower premium for the entire length of your policy.
Strategy #4: Maintain a Healthy Lifestyle
Your overall health and lifestyle directly affect life insurance rates. When determining premiums, insurers carefully assess your medical history, height/weight, family health background, smoking habits, alcohol use, driving record, and participation in risky hobbies. Individuals with active, low-risk lifestyles typically qualify for the cheapest life insurance rates.
Actionable tips for keeping insurance costs down through healthy living:
- Exercise regularly: Aim for at least 150 minutes of moderate-intensity activity, such as brisk walking, per week. Regular exercise reduces the risk of chronic diseases.
- Maintain a healthy BMI: Being overweight or obese raises mortality risk and life insurance premiums. Keep your BMI within the normal range (18.5-24.9).
- Eat a nutritious diet: Follow Canada’s Food Guide recommendations for vegetables, fruits, whole grains, lean protein, and healthy fats. A proper diet reduces disease risk.
- Don’t smoke: Smokers could pay 2 or 3 times more for life insurance than non-smokers. Quitting can lower your rates over time.
- Drink alcohol moderately: Heavy drinking negatively impacts health and life expectancy. Stick to moderate intake per Canada’s Low-Risk Alcohol Drinking Guidelines.
- Get regular check-ups: Stay on top of screenings and manage conditions through medication and lifestyle changes. Well-controlled conditions mean lower premiums.
If your health has improved since you first bought a policy, you may qualify for a much lower rate with a new provider.
Strategy #5: Take Advantage of Available Discounts
Some insurance companies offer unique discounts and incentives that allow certain applicants to qualify for reduced rates on life insurance in Canada:
- Annual Pay Discount: Paying your premium annually instead of monthly can save you money by reducing the insurer’s administrative costs.
- Couples discount: Some insurers offer a small discount if both you and your partner apply for policies at the same time (even if they are separate policies). Some also offer family discounts.
- Non-smoker discount: Kicking the habit for at least 12 months can reduce premiums by 40% to 60% thanks to qualifying for non-smoker rates.
- Professional association plans: Membership in certain professional bodies (e.g., engineers, accountants) or alumni groups may provide access to discounted group life insurance rates.
- Volume Discount: Insurers may offer discounts on larger policies with death benefits exceeding $1 million, as these policies generate substantial revenue.
Ask your insurance advisor about potential discounts to maximize savings. Even a 5% price break can equate to hundreds of dollars in annual savings.
Strategy #6: Compare Prices Annually at Renewal
If you initially purchased term life insurance, you must renew your policy once the existing term expires to maintain coverage. Many insurers impose significant rate hikes at renewal since you’re now older.
Rather than automatically renewing with your existing provider, use the renewal date as an opportunity to get quotes and secure savings:
- Shop for quotes: Get proposals from several insurers to see if you can find a lower rate than your renewal offer. As health changes over time, new insurers may provide better pricing.
- Consider shorter terms: Opting for a 20 rather than a 30-year term may provide savings at renewal due to the shorter coverage period.
- Reduce your coverage: If your needs have decreased, lower your death benefit to align with new obligations. This lowers premiums.
- Switch to permanent life insurance: For some, switching to a permanent life policy that accrues cash value may make sense later in life, depending on costs.
- Drop coverage: If you no longer need life insurance due to reduced financial obligations, letting coverage lapse instead of renewing can save you premium costs.
Strategy #7: Review and Optimize Your Existing Coverage
If you’ve already purchased a life insurance policy in the past, do not assume your existing coverage and rates are set in stone. You may be able to realize savings on in-force policies:
Policy Replacement
If you initially purchased coverage when you were young or had suboptimal health, you may pay higher premiums than if you replaced your policy today in improved health. Have an independent broker rerun your details with various insurers to see if there are savings from replacing your policy with a new one. Just beware of back-end fees if cancelling specific permanent policies early.
Term Conversion
Permanent life insurance policies often can convert from term life over to permanent coverage with little to no medical underwriting. Locking in when you’re young and healthy could mean paying lower premiums over the long run.
Premium Deposit Account
Some permanent policies allow you to prepay future premiums at today’s rates to sidestep rising costs as you age. This lets you lock in lower rates now.
Policy Loans
If you have a permanent policy with cash value accumulation, you can borrow against your policy value at favourable rates to pay premiums instead of out-of-pocket. This keeps policies active while minimizing your expenses.
Dividend Options
Participating in whole-life policies pays dividends from insurer profits. You can choose to apply dividends to pay down premium costs.
Accelerated Benefits
If you develop a terminal illness, you may be able to access a portion of your death benefit early to pay for medical care instead of higher premiums later.
FAQs on How to Save Money on Life Insurance
What is the cheapest life insurance in Canada?
Term life insurance is, by far, the most affordable type of life insurance for pure death benefit protection. Its purpose is to cover needs for a specific period, making it significantly less expensive than lifelong permanent insurance.
Who has the cheapest life insurance in Canada?
There is no single “cheapest” company. The best price for you depends entirely on your personal profile: age, gender, smoking status, health history, and the amount/type of coverage you need. A company that is cheapest for a 30-year-old marathon runner will not be the cheapest for a 50-year-old with controlled diabetes. This is why comparing the market with a broker is essential.
How can I lower my existing life insurance premium?
The best way is to see if you can qualify for a better rate with a new policy, especially if your health has improved. You can also reduce your coverage amount if your financial needs have decreased, for example, you have paid off your mortgage.
How much life insurance do I need in Canada?
As a general guideline, you need a life insurance death benefit equal to 5 to 10 times your annual income. However, a more accurate method is a needs analysis. Consider your debts (mortgage and loans), future income replacement, education expenses, and final expenses.
The Bottom Line
Securing affordable life insurance is about making a series of smart, proactive decisions. By comparing the market, locking in rates while you are young and healthy, and choosing a policy that truly matches your financial needs, you can gain significant control over your premiums.
