Is Life Insurance Worth It? Here’s the Truth

Is life insurance worth it for me?

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:

Life insurance might be worth it for you if you answered "yes" to most questions.

Who Should Get Life Insurance?

It’s a good idea to get life insurance if someone relies on you financially. More specifically, here's a look at who should consider coverage:

1. ‎‎Parents: If you have children, life insurance is a must. It ensures that your kids are financially supported for their education, daily expenses, and future milestones, even if you're not there to provide for them.
2. Homeowners: If you have a mortgage, life insurance can help pay off the outstanding balance, so your family won’t have to worry about losing their home during an already tough time. This is particularly important in Canada, where housing costs are significant, and losing a primary earner can put a substantial financial strain on the household.
3. Couples: If your partner relies on your income to maintain their standard of living, life insurance can provide financial stability and security. This is especially relevant if you share financial responsibilities like rent, loans, or other debts.
4. Business Owners: Entrepreneurs and business owners should consider life insurance to protect their business interests. It can cover outstanding business debts, ensure continuity, and protect your employees' livelihoods.
5. Young Adults: Even if you're young and single, getting life insurance early can be beneficial. Policies are generally cheaper when you're younger and healthier, and it can be a smart way to lock in lower premiums for the future.

Your dependents could be left struggling financially if you pass, but life insurance coverage can help ease that.

Some of the expenses your loved ones might experience include:

• Funeral costs in Canada average around $8,000 to $10,000, as of 2024. 
• Household debt in Canada is on the rise, year over year, says Statistics Canada.
• The average new mortgage size in Canada is $327,899 (and much higher for big cities). 

Costs can quickly add up to $450,000 just like that! That is why we always recommend to take a look at policies if you have any obligations.

Still not sure if you need it? These are example questions you should ask yourself when considering life insurance:

“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

Life insurance is about providing peace of mind. It's a way to ensure that your loved ones are taken care of financially, no matter what happens. Whether it's covering daily living expenses, paying off debts, or securing your children's future, life insurance is a key part of a solid financial plan.

Who Should Not Get Life Insurance?

You probably don’t need life insurance if there is no one that will shoulder your financial responsibilities if you pass away. 

“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

But consider this: you may have enough to cover immediate obligations, but what about things like your spouse's retirement or the kids' education?

If your income was lost, could your family maintain the existing savings schedule? If you don't think they'll be able to cover all future expenses, then life insurance would be worth it.

While it is true that most people advice that life insurance may not be worth it for individuals without financial dependents or significant assets, it is important to consider the potential future needs of your loved ones.

What age is best to get life insurance?

The best age to get life insurance is when you first have a dependent. "New" dependents are usually the catalyst behind most life insurance purchases.  

That can be a spouse, kids or any other family member that relies on you. And the age at which you buy your policy can also have significant benefits. The younger and healthier you are, the cheaper your life insurance will be.

At what age is life insurance not worth it?

The age at which you don't need life insurance depends on your financial situation and the needs of your loved ones.

Remember: the point of life insurance is to protect your dependents from financial burden if you were to pass prematurely. 

You may no longer need coverage if you've reached an age where:

• Nobody relies on your income
• You’ve paid off your debts 
• You have enough savings to support dependents
• You have a sizeable emergency fund

For most, this happens sometime around the time that we retire. The average age of retirement was 64 years old in 2022, says Statistics Canada.

This is a good milestone to help you plan for the end of your life insurance needs.

Policy Options: Which is Worth it for Me?

Life insurance is generally worth it for many Canadians, but specific types of policies are more suitable than others, depending on your situation. We'll be looking at:

• Term life insurance policies
• Permanent life insurance policies
• Group life insurance policies (employee life insurance through work)

Term Life Insurance

Term life insurance is worth it for most average Canadian families that need life insurance to cover financial obligations and dependents. 

• The term refers to the duration of coverage, usually 10, 20 or 30 years. Choose a term based on when you expect to have no dependents or pay off debts
• If you pass away during the term, your family receives the payout you chose
• Term is cheaper than permanent policies, providing coverage for the years you need it most
• This makes term policies a worthwhile investment for the average Canadian's needs

“It provides cost-effective, temporary coverage over an insured's younger years," says the CLHIA.

Permanent Life Insurance

Permanent life insurance can be a worthwhile option for Canadians with extremely high income. But it's likely not worth it for the average family. Here's what you need to know if you're asking yourself if a permanent life insurance policy is worth it for you:

• Whole life insurance (a type of permanent life insurance policy) lasts your entire life but is seven and a half times more costly than term
• Some permanent policies have cash value but are funded by high premiums and are less flexible
• Death benefit can be used to pass wealth onto your family with tax benefits
• Can build generational wealth, but it's only worth it if other investments are maxed (i.e. RRSP and TFSA)
• An affordable term life insurance policy combined with self-investing provides more control and flexibility for managing funds

‎Group Life Insurance

Group life insurance is usually a good supplement to a term policy, but it's often not enough to cover all of a family's financial needs. Here's a breakdown of group policies:

• Group life insurance policies may be worth it, especially if provided for free by an employer
• Generally, group coverage amounts to one to two times your annual salary
• Group life insurance alone may not provide enough security to support your family if you pass
• Coverage will also end if you leave the company

Keep in mind

Any coverage is better than none at all. If you're not able to pay the higher life insurance premiums for a bigger policy, you shouldn't skip the option for group coverage. A policy you can afford, even with a smaller payout, still helps.

4 examples: who is life insurance worth it for?

Here are some examples of real-life Canadians wondering, "is life insurance worth it?". Life insurance advisor Stephanie Roux shares her recommendations:

1. Elena (31) and Feng (33), in Burnaby, BC

• Elena and Feng have been married for 2 years, with a $500,000 mortgage on their home
• Elena works as a financial controller, while Feng is a coordinator at a non-profit
  

2. Asma (33), in Calgary, AB

• Asma, a business analyst, owns a condo with a mortgage balance of $250,000
• Although she makes all the payments herself, her mother co-signed her mortgage

3. Laila (24), in Regina, SK

• Laila is a few months away from completing her studies
• To stay debt-free, she chose an affordable program, lives at home and commutes to school
• Her parents are still working and can comfortably provide for their own needs

4. Barb (58) and John (62), in Barrie, ON

• Barb and John's kids are grown up and have moved out to start their own families
• Both are still working, but they're hoping to pay off the mortgage before retiring for good

Is life insurance a smart investment?

Life insurance is a smart investment for Canadians with people that rely on them financially in the sense that it's a wise purchase. It's usually not a good idea to use life insurance as an investment vehicle for cash value, as it isn't the most efficient way to invest (versus things like the stock market or an RRSP).

Here's a look at whole life insurance as an investment account compared to other types of investments:

But there are scenarios where a whole life insurance policy might be a worthwhile investment vehicle, but for the average Canadian family, this isn't the case.

The main reason you would use life insurance as an investment tool would be for tax benefits. But if your TFSA and RRSP accounts aren't maxed out, you're better off putting your money there.

Alternatives to life insurance

Life insurance helps to financially protect your family when you pass, and it's a good idea for many people.

But there are other ways to support your family. Let's take a look at some options:

Lifestyle choices play a big role.

Easing your financial footprint by living as debt-free a lifestyle as possible is a good start. Along with maximizing your savings.

Save as much as you can through cash accounts, pensions, RRSPs, and investments.

This will help you limit the potential financial blow for your dependents, helping you build your own peace of mind without relying on a third-party service.

Insure only your most significant debts so that the bulk of your financial burden is taken care of.

Example: You could get a term life insurance policy with coverage that matches your debt. If you have $200K left on your mortgage, get coverage for the exact amount of $200K, nothing more.

Next steps: is life insurance is worth it for me?

1. Take stock of your obligations, dependents, debts and emergency funds.
2. Project how long your dependents will rely on you and how long it will take to pay down your debts.
3. Choose a life insurance policy that covers you for the duration your family needs, this will help narrow down your life insurance options.
4. Decide on a coverage amount and ensure that the payout is enough to take care of your family and cover funeral expenses.
5. Make a shortlist of the best life insurance options and reach out to them to get quotes. Compare their offers, weighing coverage, flexibility, and cost of life insurance.
6. Buy life insurance from one of the life insurance companies that suit your needs

FAQ: Is life insurance worth it in Canada?

Our sources:

Canadian Life and health insurance Association. Canadian Life and health insurance Association - Canadian Life and health insurance Facts. https://www.clhia.ca/facts

Canadian Life and Health Insurance Association Inc. https://www.clhia.ca/

Government of Canada, Statistics Canada. Retirement age by class of worker, annual. https://www150.statcan.gc.ca/t1/tbl1/en

/tv.action?pid=1410006001

Payment Delinquencies Increase, Credit Card Demand and Balances are Rising. Equifax.com. https://assets.equifax.com/assets

/life insurance canada/english/consumer-trends-q3-report-en.pdf

Statista. Average value of new mortgage loans Canada Q4 2023, by metropolitan area. https://www.statista.com/statistics/1202954

/average-value-of-mortgage-loans-life insurance canada-by-metropolitan-area/

Walker, A. Funeral Costs in Canada: Questions and Answers. https://eirene.ca/blog/funeral-costs-questions-and-answers