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Which type of life insurance is best?

March 10, 2021 Ciara Rickard
A woman looking down at her feet, trying to figure out which way to go.

Whichever way you go, life insurance in Canada is very well regulated, so you don’t need to worry too much about encountering shady operations. A reassuring thing to know is that rates are competitive and won’t vary much from company to company, so no matter which route you take, you’ll likely end up with roughly the same offer at roughly the same price. Start your search by asking friends and family if they can recommend a broker or agent they had a good experience with, or just go online for a few quick quotes—you’ll have eager brokers and agents reaching out in no time.

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How do I choose from the different types of life insurance?

“Term life insurance is typically used for income protection,” says Rob Hollingsworth, head of distribution, individual insurance, at Manulife. So it’s the option most Canadians go for while they’re still in their working years. It’s the cheapest type of life insurance and therefore a more cost-effective way to make sure your dependents are covered if you die while there are still mortgage payments to make and university tuition to pay for. So if you have, say, 15 years left on your mortgage and around the same amount of time until your youngest kid finishes college or university, that would be a sensible length of time for your term life insurance policy. As time goes on and your financial situation changes, you can re-evaluate your policy and consider changing it up when the policy expires. 

“Permanent insurance is used more to protect one’s assets and for estate planning purposes,” adds Hollingsworth. “But it gets more expensive the older you are at the time of purchase, so buying young is a good way to lock in a lower rate. That, however, does not apply to all life insurance options, which is why a licensed insurance advisor can help you decide on the best plan for your specific situation.”

There are also some subtypes of permanent life insurance—mainly, universal and term-to-100. Universal life insurance is a policy that has an investment element; you decide where you want to invest; good returns will increase the value of your account and, ultimately, the payout your beneficiaries will receive. Term-to-100 is a hybrid policy: It’s like term life insurance in that it doesn’t accrue any cash value; however, it is like a permanent policy in that it lasts until you turn 100. Accordingly, it is the cheapest of the permanent life insurance options.

Universal life insurance is suited to someone who is less risk-averse and has some knowledge of investing since it provides the opportunity to increase the final death benefit. Term-to-100 (a uniquely Canadian product) is ideal for someone who wants permanent life insurance but at a lower rate.

Consider a joint or family plan

Joint First To Die (JFTD) are couple plans or family plans. These can be a good option because premiums are typically lower if you have two or more people on the same policy. But do compare joint plans to the cost of individual plans; if you’re both young and healthy, two individual plans may not cost much more but there would be the potential for two separate payouts rather than just the one. 

Some family plans allow child riders—adding children under a certain age at any time, or even those who have yet to be born to the policy. While it may seem strange to purchase life insurance for a child since they have no dependents, there are benefits—mainly, anyone who experiences the loss of a child will likely need to take time off work to grieve, and insurance would provide income protection. As well, it’s a way to guarantee insurability for your child and lock in a low rate, both of which are good if they encounter health problems later or take up a dangerous sport. 

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