What is life insurance?
Life insurance provides whomever you choose with a one-time, tax-free payment (also known as a death benefit) when the life insured dies, as long as you have paid the required premiums.
There are different types of life insurance. It not only protects your family, it can also be part of your financial plan, as you may be able to access money in your policy while you’re alive.
How much life insurance do you need?
The amount of insurance you need will depend on what you’re using it for – replacing your income, paying off your mortgage, funding education, etc.
According to the Canadian Life and Health Insurance Association, the average life insurance protection per household in Canada is $533,000 in 2026, up from $509,000 in 2024.
Every person’s situation is unique. Ask yourself a few questions:
- Who do I want to protect? This could be your spouse, partner, children, or other loved ones.
- How long might they need financial support? If a loved one has special needs or a disability, they may need support for longer.
- How much debt do I have compared to my savings? You might want more coverage for a mortgage or other outstanding loans. Take your existing savings and investments into account.
How to calculate how much coverage you need
Start by adding up what you want your life insurance to cover in 2 groups:
- Debts and obligations: Your mortgage, other debts, and funeral and final expenses.
- Future family expenses: Income replacement, childcare and education. Consider how many years your family will need this support.
Then subtract savings available for these needs and existing life insurance coverage, including workplace benefits. The remaining amount is an estimate of the additional coverage you may need. An advisor can help you assess any gaps.
Example: What if I have a mortgage or debts?
Trevor is in his mid-30s and makes $70,000 a year, wants to add $50,000 to his 2 children’s registered education savings plans (RESPs), pay off a $400,000 mortgage and provide $10,000 for funeral and final expenses.
- 5 times annual income ($70,000) = $350,000
- Registered education savings plans (RESPs) ($50,000 x 2 children) = $100,000
- Mortgage = $400,000
- Final expenses = $10,000
- Total = $860,000
That means his policy should payout $860,000. And because he’s married and his partner makes the same income, they should both have policies for this amount.
An advisor can help you determine the amount of life insurance that’s right for your situation.
The above example is for illustrative purposes only. Situations will vary according to specific circumstances.
Is life insurance through your workplace enough?
Workplace life insurance counts toward your total coverage, but it may not cover all your needs. The amount may be limited, and coverage can end if you leave your job or change employers. Check your plan’s coverage amount and terms before relying on it.
When should you review your life insurance coverage needs?
You may want to review your coverage with your advisor once a year or so, or during major life events — which can include:
- The birth of a child
- A marriage
- A divorce
- Buying a larger home or taking on a larger mortgage
- Retirement planning
- Changes in business ownership
Revisit your debts, family expenses, savings and existing coverage to see whether your needs have changed. Learn more about when to review your life insurance policy.
What type of life insurance you need
There are 2 basic types of life insurance coverage: term and permanent. Each has unique features designed to meet different needs.
Term insurance
Term life insurance protects you for a set period of time, like 5 or 50 years. When that period ends, your coverage is renewed for a further period at a higher cost if you don’t cancel your coverage. You can also convert it to permanent life insurance without having to answer questions about your health.
It often has a lower initial cost than permanent life insurance, and it’s a popular way for those starting out to protect themselves and their families. Term life insurance is initially usually less expensive than permanent life insurance, so you may be able to purchase more coverage.
Permanent life insurance
Permanent life insurance provides lifelong coverage as long as you pay the required premiums. Participating and universal life insurance are two available types of permanent insurance.
With participating life insurance, your premiums and those of other participating policyowners go into a shared participating account. The insurer’s investment team manages this account, which pays death benefits and any dividends.
Dividends may be paid when the participating account performs better than expected. They aren’t guaranteed. You can use any dividends to buy additional coverage, reduce premiums or receive cash. Withdrawals may be taxable. Borrowing or withdrawing money reduces the policy’s cash value and death benefit.
Universal life insurance combines lifelong protection with an investment component. You choose investment accounts, and growth can accumulate tax-free within government limits. You also have flexibility in how much and how often you pay premiums, as long as there is enough value in the policy to cover the cost of insurance and other charges. You can withdraw or borrow from the policy, with potential tax implications, and choose who receives the death benefit.
Other types of insurance to consider
Critical illness insurance
Critical illness insurance can give you a tax-free payment if you’re diagnosed with a covered serious condition. Your contract will define which conditions you’re covered for, but some examples include cancer, heart attack or stroke.
Disability insurance
Disability insurance can give you a tax-free monthly payment to help replace your income and cover your expenses if an illness or injury keeps you from working.