Life insurance provides essential protection for loved ones and peace of mind for all Canadians across all walks of life, knowing that financial obligations can be met even in their absence. Here we look at everything you need to know about life insurance in Canada, including for demographics like the LGBTQ+ community.
How Life Insurance Works in Canada
Life insurance in Canada is a contract between you and your insurance provider that allows you to make monthly or annual payments (premiums) and in return your family or beneficiaries will be paid an agreed amount upon your death.
Like any other type of insurance, life insurance is about risk, risk estimation, and risk minimization. Individuals seeking insurance face more financial risks as they grow, with the risk exposure being greater if they have families or people who depend on them. The risks can include:
- Drop in earnings: Events beyond your control can affect your income
- Health issues: Your health may deteriorate to a point where it affects your earning ability
- Premature death: If you die young, your family will suffer from income loss and struggle to cater for their needs, including education
Life insurance companies also assess their risks before insuring you. For example, if you have a pre-existing medical condition, it would be riskier for an insurance provider than for a healthy individual.
So, What Factors Determine the Cost of Life Insurance in Canada?
Life insurance companies use several factors to determine life insurance premiums in Canada, including:
- Age and health: If you are young and healthier, you will receive favorable rates because the insurance views you as lower risk. Older people with preexisting medical conditions present a higher risk to insurers and will attract higher premiums.
- Gender: Gender has traditionally been used as a rating factor by life insurance providers, with men paying higher premiums than women due to shorter life expectancy. Today, we have to consider LGBTQ+ life insurance and other specialized policies.
- Family health history: Your insurance provider will want to know the hereditary conditions and longevity patterns of your family to determine your pricing.
- Health status: If you have pre-existing medical conditions like diabetes, cardiovascular disease, blood pressure issues, etc., you may pay higher premiums than a healthy person.
- Smoking status: Smoking is known to cause many life-threatening health problems like heart disease, respiratory diseases, fertility problems, lung cancer, etc. Therefore, insurance providers will consider a smoker or an addict high risk and will charge them more premiums.
- Occupation and lifestyle: If you engage in high-risk jobs like fishing, logging, etc., or hazardous hobbies like skydiving, you may end up paying more premiums for life coverage.
Types of Life Insurance Canada
Term Life Insurance
Also called temporary coverage, term life insurance is ideal for short-term needs or a set period, for example, 10, 20, or 30 years. This type of insurance is always cheaper than permanent life insurance policies. With this policy, you can opt to renew the plan for the same term length or go for the annual renewals after the initial term.
The lower premiums during the initial term make this life insurance coverage ideal for young families or those with no permanent financial obligations. The premiums increase with each renewal, with term policies expiring before the age of 85.
T100 Life Insurance (Permanent Coverage)
This is a more affordable life policy that provides coverage up to 100 years of age. Ideally, with this plan, you get lifetime protection (until you reach 100 when you stop paying premiums). Unlike term life insurance, the premiums are fixed for life (paid until you reach 100 years).
Additionally, T100+ offers policy loans, increasing cash surrender values and cash value can be used as collateral after 11 years. The policy, however, lacks premium flexibility, meaning you risk policy lapse if you miss a premium. You may want to consider this policy if you want to cater to lifelong needs.
Universal Life Insurance
This is also a permanent life insurance policy that offers a flexible plan and gives you tax-advantaged growth potential. With this policy, you can invest and make wealth on a tax-deferred basis and if your investment works well, it can help lower your premiums for some time.
Whole Life Insurance
As the name suggests, this type of life policy doesn’t expire. It will cover you for your whole life, with cash value that accumulates over time.
With whole life insurance, Canadians can pay fixed premiums to get death benefits. It can allow for shorter payment periods of 10, 15, or 20 years. This type of life insurance has the highest initial cost but it also offers predictable growth.
How to Choose the Best Insurance Provider
Choosing the best life insurance policy goes beyond the premium costs. Here are some factors to consider:
Financial Strength Ratings
Before you choose one life insurance provider over another, consider the stability ratings from independent agencies like DBRS, S&P, and A.M. Best. Always stick with a provider with a higher rating. If you are looking for a trusted life insurance partner in Canada, consider visiting Insurance Supermarket International Inc which offers digital life insurance solutions to thousands of Canadians.
Conversion Options
When choosing a provider, select one whose term policies include provisions that allow conversion to permanent coverage without additional medical underwriting to ensure valuable future flexibility.
Underwriting Approach
Insurance providers vary in how they evaluate health conditions, occupational risks, and lifestyle factors. Working with insurance digital providers like Policy Me who understand the different insurers’ underwriting philosophies will help you identify the most favorable terms.
Premium Guarantee Periods
Some policies feature level premiums for specific periods, while others allow for potential increases. Take time to understand the guarantee structure to avoid future payment surprises. Consider working with insurance providers like Neilson that design, build, and manage every stage of your journey to provide a personalized policy that benefits your finances in the long term.
Life Insurance for LGBTQ: What are the Considerations?
Historically, LGBTQ+ individuals faced challenges when searching for life insurance coverage. In the 1980s and 1990s (when HIV/AIDS was more prevalent), many insurance providers implemented practices targeting gay and bisexual men. Also, before the legal recognition of same-sex relationships in Canada, LGBTQ+ Canadians faced challenges obtaining family coverage or designating same-sex partners as beneficiaries.
Today, things have changed as Canadian life insurance is more inclusive and accommodative of the LGBTQ+ community. For example, major Canadian insurers have updated their underwriting to eliminate discrimination based on sexual orientation. Additionally, insurance policies now accommodate diverse family structures, including same-sex spouses.
Despite the notable progress, LGBTQ+ individuals in Canada still face unique challenges when applying for life insurance. These include:
- Gender classification: Insurance companies rely on the applicant’s current legal gender to calculate premiums. LGBTQ+ individuals may be required to provide legal gender change documents for appropriate underwriting.
- Medical history documentation: Insurance providers may require applicants to provide medical history, including gender-affirming treatment. Work with insurance professionals who understand transgender issues to ensure a smooth application process.
- Consider gender-neutral options: Look for Canadian insurers that offer gender-neutral policies that don’t include gender as a rating factor.
Life Insurance in Canada – Conclusion
Life insurance is an essential investment for Canadians who want to make deliberate efforts to secure their future and that of their loved ones. We hope this information helps you gain an understanding of how to select the best policy for you and the right insurance provider to work with to achieve financial freedom.
