Life Insurance for Newcomers to Canada

As a newcomer or Canadian non-resident, you might be wondering: can I get life insurance? 

The answer is YES.

If you are a new immigrant to Canada, you do not have to worry. Permanent residents, refugees with Convention refugee status, and people with work visas or student visas are all eligible for life insurance. In some cases, certain restrictions may apply. Read on to learn more.

What Does Life Insurance Cover?

A life insurance policy is a legally-binding contract between you and the insurer. The insurance provider is obliged to issue the death benefit to your beneficiary if you pass away while your policy is active. 

Life insurance covers many causes of death. These include natural causes, accidents, COVID-19 related complications, and murder. However, if you pass away under excluded circumstances — like suicide in the first two or three years — or commit fraud, the insurer can refuse to pay out. 

Types of Life Insurance in Canada

Life insurance policies are of two types: term life or whole life.

Term Life Insurance

Term life insurance provides coverage for a fixed number of years, for example 10, 20, or 30 years, or until you reach age 75.  If you pass away during this period, the insurer will pay out a cash lump sum. For example, if you take out a 20-year term life policy, should you die within the next 20 years, your loved ones will receive the policy's death benefit.

You are free to choose the policy length that works best for your family. The longer the policy term, the higher the monthly premium, all other things being equal. 

If your main concern is ensuring your family can pay down the mortgage after your death, you can purchase life insurance coverage for the length of your mortgage.

Also, consider how long it takes before your children become financially independent. Raising children in Canada is expensive, and ideally you would want the death benefit to be large  enough to last until your children complete college. 

Another issue to consider is your retirement age. If you are buying life insurance to provide income replacement for your surviving spouse, this may become less of a concern once you reach retirement age, have paid off your mortgage, and your children have left the nest.

Because term life insurance is limited in duration, it is ideal for those who want to cover large expenses such as a mortgage and protect their family's future until their children become financially independent. When the policy term expires, the coverage terminates and you are no longer insured. So, if you pass away three months after your plan expires, your loved ones will receive no compensation.

Whole Life Insurance

Whole life insurance provides coverage for your entire life, as long as you make your monthly payments. Most permanent life insurance policies (but not all) include a cash value component. This sub-account earns interest or capital gains and grows tax-free. You can access the cash value of the coverage at any moment and for any reason while you are still alive. When you die, your loved ones normally only receive the death benefit. If your policy contains unused cash value at the time of death, the insurer will get it.

Permanent life insurance is up to 10 to 15 times more expensive than term life insurance since it provides lifetime protection and accumulates financial value. Despite the high rates, permanent life insurance may be the best option in certain circumstances. For example, someone with a lifelong dependent or someone looking for an extra investment vehicle may find it worthwhile.

The most common types of permanent life insurance policies are as follows: 

• Whole life insurance: Whole life insurance provides lifelong coverage and builds cash value. The cash value earns a set rate of interest and grows on a tax-deferred basis, meaning you will pay tax only when you access it. 
• Universal life insurance: Universal life also provides lifetime protection and accumulates cash value, but lets you decide how you want the cash value to be invested. Also, the cash value does not grow at a guaranteed rate and you may increase or decrease the premium payment size and the death benefit within permissible limits. 
• Guaranteed Issue life insurance: Most life insurance policies require medical underwriting, but guaranteed issue is an exception. You can skip the medical examination and the health questionnaire, meaning approval is almost guaranteed if you are below a certain age. On the flip side, premiums are more expensive than standard permanent life insurance plans and the maximum coverage available is limited — usually $50,000. Guaranteed issue plans may or may not build cash value, depending on the insurer. However, the potential for wealth accumulation is rather small, as the policy amount is so tiny.  

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Life Insurance for Permanent Residents

Permanent residents qualify for life insurance with any provider just like Canadian citizens.  You not face any restrictions in regard to coverage amount and life insurance plans. However, you will likely have to go through a stricter screening process (underwriting) if you apply before completing a year in Canada or for a high coverage amount. 

Life Insurance for Refugees

Applicants who have been granted refugee status can purchase life insurance coverage of up to $250,000 or more, depending on the insurance company. Some providers may approve you as soon as you arrive, others may extend you coverage only after you have been living in Canada for a certain period, usually between 6 or 12 months. 

Life Insurance with a Work Visa

Work visa holders in Canada can get medically approved life insurance, but not all providers will insure them. The standards for approval and the maximum coverage available vary among those who do. Some life insurance companies may provide you a coverage the moment you arrive in Canada, while others may need you to wait three to six months before applying.

In most cases, the maximum amount of coverage offered is limited to $250,000. However, some insurers may be ready to issue you a larger coverage.

To be considered, you must provide a copy of your work permit along with the life insurance application form. If you have been in Canada for less than a year, you may face more stringent screening.

Life Insurance with a Student Visa

If you are in Canada on a student visa, you are eligible for life insurance. The maximum amount of coverage you can take out varies by the insurer. Different providers have different requirements for applicants with a study permit. For instance, some life insurance companies will approve you only if you also apply for permanent residency. 

Life Insurance for Spouses and Children

Spouses and dependent children of permanent or temporary residents currently living in Canada are eligible for life insurance with some but not all companies. Generally, they can buy coverage for up to a certain percentage of the amount available to their spouse or parent. 

How to get Life Insurance As a Newcomer to Canada?

The process of buying life insurance for newcomers is no different than for Canadian citizens. The only difference is that newcomers may have to submit additional documents, like a copy of work permit, and undergo a stricter medical screening process. 

• Decide how much life insurance you need

The first step to buying life insurance is figuring out how much coverage you need.  Some experts recommend aiming for at least 10 times your gross annual income for life insurance cover. But this is just a general guideline. You may need 15 times or even 20 times your annual salary if you have a large family or several debts. 

Another way to calculate your life insurance needs is to multiply your annual salary with the number of years your family will need income replacement. For instance, if you want to replace your annual salary of $50,000 for 20 years, you should apply for a $1 million life insurance policy. 

• Determine what type of life insurance you need

The next step is to determine if you need term life insurance or permanent life insurance. 

Generally, term life insurance is suitable for financial obligations that have an end date. For example, if you are buying life insurance to secure your family’s future until you achieve financial independence or your children leave the nest, a term life plan will suit you better. Likewise, if you want life insurance for covering your mortgage and other loans, consider term life. 

On the other hand, permanent life insurance is usually a better choice for someone with a lifelong dependant or someone who wants to use life insurance for estate planning or as an investment tool. 

• Shop around

Premium rates can vary significantly between insurance companies. Comparing quotes is the only way to ensure you are getting the best value for money. 

• Submit the life insurance application

Once you have found the right life insurance product that fits your budget, fill out the application and provide all the required documents. 

• Schedule a life insurance medical examination

All fully underwritten life insurance plans involve a paramedical examination, which is similar to an annual physical; and you can schedule one at your convenience. Applicants residing in Canada for less than 12 months will likely have to undergo a stricter medical screening, including tests for health conditions like Hepatitis and HIV. 

• Pay the first premium

One to two weeks later, assuming your medical examination does not raise any red flags, you will receive coverage and the exact premium amount you must pay. This may or may not be the same as the initial quote you received. Your life insurance policy will become active the moment you pay the first premium. 

How Expensive is Life Insurance For a Newcomer to Canada?

Whether you have been living in Canada for three months or three years, life insurance will cost the same. That said, some life insurance carriers may limit the coverage amount available for newcomers.  

How much you will pay for a life insurance policy depends on many factors, including: 

1. Age

Generally, the younger you are, the lower the cost of coverage. Younger people have a lower risk of dying, and with age comes a greater chance of developing health conditions, which can push up the premiums. 

2. Health and lifestyle

Most life insurance plans are medically underwritten. Insurance carriers consider things like your medical history, family history, Body Mass Index (BMI), and smoking status when calculating your premium rate. A health condition or poor medical history will increase your annual premiums, as will an unhealthy lifestyle and a higher BMI. 

3. Smoking

Smoking and affordable life insurance premiums do not go hand in hand. Because smokers are more likely to develop certain medical conditions, like heart attack or certain cancers; and generally have a shorter lifespan than non-smokers, life insurers consider them an impaired risk. As such, they pay more for coverage. How much more? That depends on your overall health, but smokers usually pay two to five times more for life insurance. 

4. Family history

A history of serious hereditary illness in the immediate family (parents and siblings) will likely increase your cost of coverage. During the application process, the insurance provider will ask you questions related to your family history. Hereditary conditions that could impact your premium rate include heart disease, Parkinson’s disease, stroke, type 2 diabetes, and certain cancers. 

5. Occupation

Some jobs are riskier than others. If your occupation is considered as high-risk, it could impact your insurance premiums. 

6. Policy type

Term life insurance is far less expensive than whole life insurance or other forms of permanent life insurance. Premium rates for long-term policies in term life insurance are higher.

Purchasing a shorter insurance, on the other hand, is not always a good option. If your term life insurance policy expires and you need to obtain a new policy, the cost of coverage will almost certainly rise because you will be older. That is why it may be worthwhile to choose a longer-term strategy the first time.

The length of time your policy should last is determined by your unique condition and demands. For example, if your mortgage is your largest financial responsibility and you have 20 years of payments left, your term life policy should be at least 20 years in length.

Joint life insurance that cover two people is also likely to be less expensive. However, because the insurer only pays out once, they provide less coverage than two separate plans.

7. Policy amount

The higher the policy amount, the more expensive the life insurance premium. The purpose of life insurance is to help your family live comfortably after your death. So, the level of protection you need depends on how many dependents you have and your total debt. For instance, if you have five dependents, you will likely need more coverage than someone who is financially responsible for only her spouse. 

Do Newcomers in Canada Need Life insurance?

Newcomers in Canada are not legally obligated to get life insurance. But depending on your circumstances, it may be a smart investment. If you have people who depend on you financially, life insurance can be worth the cost. Life Insurance pays out either a lump sum or regular payments in the event of your death, giving your dependents financial support when you are no longer around. 

Conclusion

Newcomers to Canada, whether refugees or on a work or student visa, are eligible for life insurance. However, not all insurers will write policies for such people. Furthermore, certain insurers may impose limitations on the amount of coverage and the length of time you must reside in Canada before being eligible for coverage. Permanent residents, on the other hand, are not subject to such limitations. Permanent residents are treated the same as Canadian citizens by life insurance providers.

If you have recently come to Canada and wish to protect your family's future with a life insurance policy, Dundas Life will assist you in obtaining the appropriate coverage at a reasonable price.

Frequently Asked Questions

Are Foreign Life Insurance Proceeds Taxable In Canada? 

Proceeds from foreign life insurance policies are usually subject to tax. Speak to a tax specialist to find out if your loved ones will pay tax on the payout they will receive upon your death and how they can reduce the tax bill. 

Can a Non-Canadian Citizen get Life Insurance in Canada? 

Yes, as long as the individual has a valid work or student visa, they are eligible for life insurance. That said, some insurance companies may require applicants to have lived in Canada for a certain amount of time before they can be considered.

Can I Get Canadian Life Insurance If I am a Canadian Citizen but Live in Another Country?

Yes, you can qualify for Canadian life insurance as long as you are a Canadian citizen, but your premiums may be higher, depending on where you live.