Is Life Insurance Worth It? Here’s the Truth

Is life insurance worth it?

By providing a tax-free death benefit to your beneficiaries after you’re gone, life insurance allows you to tie up the loose ends that death may cut short—stuff like large debts, a thriving business, growing young children, and the life you’ve built with your partner.

If you don’t have many projects on the go, or you’ve undertaken sound financial planning, life insurance may not be as important. But it can still provide the means for post-life goals such as inheritances, funeral expenses, estate planning, or charitable donations.

Life insurance is worth it in Canada for those with:

• Large debts, like a mortgage balance or a business loan
• Has loved ones that depend on their income and would financially struggle without you there
• Wants the peace of mind of knowing their dependents are financially covered, even in the worst-case-scenario

As a rule of thumb, term life insurance is generally worthwhile for the average Canadian's financial needs.

Do I need life insurance?

If you're not sure you need life insurance, think about this: can your loved ones take care of themselves if you're gone? To help you out, start with the image below:

Who needs life insurance?

Now that we’ve covered the three why’s of life insurance—dependents, debts, and post-life goals— it’s time to cover the who’s. 

Here’s a sample of the most popular types of life insurance and the financial protection they can provide for the ones who matter most:

• Life insurance for couples can provide financial support for your partner and address shared debts such as mortgages, car loans, and lines of credit during a difficult time.
• Life insurance for homeowners can pay off your mortgage so it doesn’t become a burden to your loved ones, which is especially important given Canada’s rising housing prices.
• Life insurance for parents can help care for your children and provide for their education after you’re gone, especially if you’re a single parent.
• Life insurance for seniors can provide for post-life goals such as paying for a funeral, leaving an inheritance, making a charitable donation, or splitting an estate.
• High-risk life insurance can help people with a risky occupation, hobby, or pre-existing medical condition provide for their loved ones in a worst-case scenario. 
• Life insurance for business owners can protect your employee’s livelihoods and help your growing company survive your loss.

And while we often think of who we’ll leave behind after we die, we don’t often think of what we might leave behind. 

A burial costs between $5,000-$25,000 in Canada, while cremation costs $2,000-$5,000. Add up tuition, textbooks, and living expenses, and it costs about $50,000 to send a single child to university. Even settling an estate takes an average of $18,000 for an executor, $12,400 for accounting and legal fees, and 18 months to process everything.

“Do you want to pay off the mortgage? Cover your debts (credit cards or car loans)? Do you have kids or want kids later? Will you cover childcare or tuition? Do you want to pass off a nest egg? Do you want to supplement that income for your spouse?” — Jordan Rodrigues, Insurance Specialist & Product Expert, Policyplan.ca

If you answered yes to any of these questions, it might be time to start asking a new one: “How much life insurance do I need?”

Who doesn’t need life insurance?

People without dependents, large debts, or post-life goals (or who already have enough savings to cover them) probably don’t need life insurance. The key is to think about your responsibilities and financial situation, because life insurance can be worth it at any age.

For example, a financially-savvy 26-year-old with medical school loans might want to lock in an affordable, 10-year term plan for the sake of their parents’ financial security. A retired couple might choose the same insurance product before embarking on a decade-long life on the road. Conversely, an office worker with three children might decide against coverage because they have an excellent group insurance plan through their workplace.

Term life insurance—which lasts for 10-30 years—can help the majority of Canadians address finite financial concerns like these. As a bonus, you can apply online, most applicants don’t require a medical exam, and it has lower premiums than a permanent life insurance policy (which lasts your whole life).

Lastly, people who want a smart investment probably don’t need life insurance options unless they’ve maxed out every other financial instrument. Whole life insurance—which has an investment component—usually underperforms when compared to stocks, index funds, and Registered Retirement Savings Plans (RRSPs).

If you’ve already maxed out your RRSP and Tax-Free Savings Plan (TFSA) allowances, you may be able to use a whole life insurance policy to pass on your wealth with relatively few taxes. However, since less than 7% of Canadians contributed to both their TFSA and RRSP in 2023, this exception is unlikely to apply to you.

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“If you have no mortgage and you have some savings to cover your family's expenses, you might not need life insurance.” — Stephanie Roux, Life Insurance Advisor

Ask an expert: do I need life insurance?

For those still on the fence, expert life insurance advisor Stephanie Roux shares the recommendations she made to four real-life Canadian couples and individuals facing the same question:

Elena and Feng from Burnaby, BC

Elena (31) and Feng (33) have been married for two years and hold a $500,000 mortgage together. Elena works as a financial controller, while Feng is a coordinator at a non-profit.

Is life insurance worth it for Elena and Feng?

"Elena and Feng need life insurance. If one of them were to pass, the surviving spouse would have to cover the mortgage. And without their partner's income, the other might need help with daily expenses. That's why death benefits from a life insurance policy are so critical."

Asma from Calgary, AB

Asma (33) is a business analyst who owns a condo and a mortgage with $250,000 remaining. Although she makes all the payments herself, her mother was a co-signer.

Is life insurance worth it for Asma?

"Asma needs life insurance. She has a mortgage that needs to be paid if she passes. And because her mother has co-signed, she'd be responsible for the payments.Any other outstanding debts she has could also become her mother's responsibility. She doesn't want to burden her with these costs. That's why life insurance is important."

Laila from Regina, SK

Laila (24) is a student and only a few months away from completing her studies. To keep costs low, she attends an affordable program and lives with her working parents, who can comfortably provide for their own needs.

Is life insurance worth it for Laila?

"Laila probably doesn’t need life insurance. She has no debts or dependents."

Barb and John from Barrie, ON

Barb (58) and John (62) have grown children who just moved out. The two of them are still working to pay off their shared mortgage before retiring for good.

Is life insurance worth it for Barb and John?

"Barb and John need life insurance. They still have an outstanding balance on their mortgage. Financially, their children are just starting out and may not have the money to support the surviving parent."

Next steps: do I need life insurance?

1. To determine your life insurance needs, consider how many people in your life rely on you financially, whether you have any large debts, and what you’d like to happen after you die.
2. Use an online life insurance calculator to estimate the coverage you need to achieve your financial goals. 
3. Make a list of your savings and assets, then subtract it from the life insurance coverage you calculated: do you have enough to cover everything?
4. Take a look at our guide to the different types of life insurance to find the right product for you or jump straight into a review of the best life insurance in Canada.

FAQ: Is life insurance worth it in Canada?

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