Cheapest Life Insurance in Canada

Life insurance is necessary for most people, but many avoid looking at it because of the cost. But that shouldn’t be the case, as life insurance is more affordable than most people think. Take, for instance, term life insurance. It can be cheaper than a cup of coffee a day and offers a cost-effective way to cover financial obligations that have an expiry date, like a mortgage. 

In this guide, we look at different types of life insurance, factors that go into your life insurance quotes, and how you can keep the premium costs as low as possible. 

What is life insurance?

Life insurance is a legal contract between you and the insurance company. In return for regular premiums, the insurer promises to pay a certain amount, known as the death benefit, to the person chosen by you. 

Every life insurance contract has three key players. 

1. The Insured – The person whose life the policy covers. 
2. The policyholder – The policyholder, also referred as the policy owner, is responsible for paying the premiums and the owner of the policy. Often the insured and the policyholder are the same person, but they can be different too. 
3. The beneficiary – Upon insured’s death, the beneficiary receives the death benefit. The policyholder designates the beneficiary and usually has the full rights to change the beneficiary designation at any time. You can name multiple beneficiaries on your policy. 

Life insurance policies come in two types: term life insurance and permanent life insurance. 

Term life insurance, often referred as the purest form of life insurance, covers you for a set period. The most common lengths for term life insurance are 10, 20, and 30 years, though there are policies that provide coverage until you reach a certain age, like 65. If you pass while the policy is active, your beneficiary receives the death benefit; otherwise, they don’t. Term life plans don’t build cash value.  

Permanent life insurance policies don’t have an expiry date. They cover you for as long as you live, meaning your dependents will receive the payout no matter when you pass. Many permanent life plans, such as whole life insurance and certain types of universal life insurance, include a savings element — called the cash value. A portion of each premium payment is used for growing cash value, which grows on a tax-deferred basis.

The cash value is no different from any other liquid asset, meaning you can access it quickly at any time and use the funds however you like. Upon your death, your family will usually receive the death benefit, not the cash value. Permanent life insurance is considerably more expensive than term life insurance. 

What cheap life insurance options are available in Canada?

If you are looking for low cost life insurance, term life insurance is your best. It is several times cheaper than whole life insurance and can take care of expenses that have an expiry date. Of course, how much you pay in premiums will depends on many factors, including: 

1. Age: Life insurance premiums increase as you age. For this reason, financial experts recommend buying coverage early in life. 
2. Gender: Women tend to live longer than men and as such receive lower premium rates. 
3. Health: Life insurance companies reward healthy applicant with lower rates while a pre-existing condition will likely raise your coverage cost.
4. Hobbies:  Activities that give an adrenalin rush, like heli-skiing or bungee jumping, can be a lot of fun, but they can increase your cost of life insurance, sometimes significantly. For example, premiums for people who regularly engage in extreme sports are anywhere between 50% and 250% higher than for those with safer hobbies. 
5. Policy type: As said earlier, term life insurance is way cheaper than whole life insurance. 
6. Policy term: The shorter the policy term, the lower the premiums, other things being equal. 
7. Coverage amount: The larger the death benefit, the higher the premium rate

How to save money buying life insurance

Life insurance is a must-have for everyone who has dependents or debts that will get passed to others, but it can a little costly for some people. Thankfully, there are actions you can take to lower the cost, including: 

1. Buying life insurance when you’re young

Regardless of whether you go for term or permanent life insurance, your premiums will be lower when you’re younger. For every year you age, the premium rate goes up by 5-8% on average. 

2. Don’t smoke

Given the fact that the life expectancy for smokers is 10 years shorter than non-smokers, it comes as no surprise that smokers pay  more for life insurance. That said, the good news is that kicking the habit makes you eligible for lower rates after just 12 months. 

3. Choose the right life insurance product

Broadly speaking, there are two types of life insurance policies: term life and permanent life insurance. Term life insurance provides coverage for a predetermined period, while permanent life insurance has no expiry date. Alongside permanent coverage, many permanent life plans build cash value. 

Permanent life insurance comes in many forms, but whole life insurance, which has level premiums and death benefit and grows cash value at fixed rate, is the most popular. However, despite unique benefits, permanent life insurance is not a right fit for most people, largely because of its high cost. On average, it is 5-15 times costlier than term life insurance. 

If you are buying life insurance for the usual reasons — to cover the mortgage and other debts, act as an income replacement for your spouse, or pay for your kids’ education fees — term life insurance is a smart option. It’s simple and more cost-effective and you will be better off investing the cost difference between term and whole life insurance in the stock market.

4. Ladder term life insurance policies

Many people purchase a single, large term life insurance policy to secure their family’s future for the next 20 or 30 years. Term life insurance is by far the most affordable way to cover your temporary financial obligations, but you may want to rethink the “one policy for all financial needs” strategy. That’s because life insurance needs change with time. Twenty years down the line you may not need as much coverage as today. If you buy one policy for all your needs, you may end up paying for coverage you don’t need. 

The life insurance ladder strategy, which involves buying multiple plans with different expiry dates and coverage amounts, can be a more affordable option. Here’s a real-life example that shows how the laddering strategy works: 

Robert, a 31-year-old male, is married with two young kids, aged 4 and 2. He has 10 years left on his education loan repayments and 28 years on the mortgage repayments. Besides covering these two debts, Robert wants his term life plan to provide his spouse with enough money to send their children to college.

Robert has two options. He can buy one large policy that matches the timeframe of his biggest obligation, i.e. mortgage repayments. Or he can take out a policy for each of his three major financial obligations with different end dates and coverage amounts. For example, he can buy: 

• A $100,000 10-year term life plan to cover his student loan repayments
• A $200,000 20-year term policy to pay for his kids’ college fees
• A $500,000 30-year term policy to take care of the mortgage balance

By going with multiple term life insurance policies of varied term lengths, Robert can ensure that he will be adequately covered in the different stages of his life without having to pay for coverage after the need for it has expired. For instance, with 10 years left on student loan, Robert will not have to worry about these costs in a decade.

Likewise, he will likely not have to worry about covering the cost of sending his children to college in two decades. Purchasing three policies featuring different term lengths instead of buying one large policy with a 30-year-term will likely save him a sizable sum. 

5. Shop the market

Life insurance premiums are based on many factors, like your age, gender, health, occupation, hobbies, and net income. Different insurers assess these factors differently, as a result of which premium rates often vary wildly from one provider to the next. Shopping around and comparing quotes from multiple insurers gives you the best chance to keep your coverage cost as low as possible. 

6. Pay the premiums annually

Typically, you can pay life insurance premiums monthly, quarterly, semi-annually, or annually, with once-a-year-payment schedule being the most cost-effective. Most insurers offer handsome discounts to policyholders who pay annually rather than monthly. 

How much life insurance do you need?

The proceeds of your policy should be large enough to cover all your financial obligations after your death. Start by adding your long-term obligations, like your mortgage and the cost of education for your kids, and then subtract the assets you have. The remainder is the amount your life insurance policy should provide after your death. 

If you want a quick estimate, you can use either “multiply income by 10” or the DIME formula. But keep in mind both have certain limitations. For a well-rounded estimate, it might be better to consult an independent life insurance broker. He or she can provide you an estimate based on your family’s financial situation and factors that are unique to you and your life. 

Multiply your income by 10

This is the simplest and quickest way to determine your life insurance coverage needs and involves multiplying your annual income by 10. However, the “10 times annual income” rule overlooks certain important aspects of your financial life. For instance, it doesn’t factor in your life savings, nor does it consider your family’s unique needs, like providing coverage for a stay-at-home parent. 

The DIME method

The DIME method is based on the four important aspects of your financial life:

Debt: Calculate the amount of debt you will leave behind if you died today. Add the estimated cost of your funeral to this amount. 

Income: Multiply your annual salary with the number of years your family will require financial support after you’re gone. 

Mortgage: This refers to your current mortgage balance.

Education: Calculate the education fees for your children

Now add all of these financial obligations to determine your life insurance needs. Even though the DIME method is more thorough, it doesn’t consider your life savings or any existing life insurance coverage that you have.

Conclusion

Life insurance policies are either term or permanent. Term life insurance is several times cheaper than comparable whole life and universal life plans. If you want low cost life insurance, consider term life insurance and compare quotes from multiple providers. Dundas Life, one of the top independent brokers in Canada, can help you compare deals from the biggest providers.

This way, you can secure the coverage you need, knowing you are getting the best value for your money. Book a free 15 minute call today.

Frequently Asked Questions

How much does life insurance cost?

The cost of life insurance is primarily based on your age, medical history, and the type and amount of life insurance you buy. For example, a healthy 30-year-old can expect to pay roughly $150 a year for a 10-year term life plan with a $100,000 death benefit. In contrast, the annual premium for a 60-year-old smoker can be in excess of $1,200.

What factors affect the price of life insurance?

How much you will pay for life insurance depends on many factors, some of which are not in your control while others are. Your age, gender, personal medical history, and family medical history impacts your premium rate, as do controllable factors like your hobbies, lifestyle choices (like smoking or alcohol consumption), driving record, and the type and amount of life insurance you want. 

Should you invest in the term life insurance or whole life insurance?

The best type of life insurance for you depends on your specific personal and financial situation. If you want to cover temporary financial needs, like a mortgage or the years until you become financially independent or your children start earning, term life insurance is the right fit.

On the other hand, if you have permanent or unique needs, whole life insurance may make more sense. For example, whole life insurance is a smart option for a parent with a special needs child or someone who wants to leave an inheritance or use life insurance to grow wealth on a tax-deferred basis.