5 Types of Life Insurance in Canada, Explained

Ever wonder what are the 5 main types of life insurance in Canada? We cover each type in detail starting with term life insurance.

July 6, 2021

Are you looking to buy coverage but can’t decide between the many types of life insurance available?

You’re not alone. With all the choices available, many people struggle to find a policy that’s right for them.

However, we're here to help. We’ll take you through the most common types of life insurance policies and their key features. This will help you pick an insurance policy that's best tailored to your needs.

You’ll learn:

What is Term Life Insurance?

Term life insurance covers you for a specific number of years, usually 10, 20, or 30 years. It provides coverage during the years you are likely to need it most. That is, during your 30s, 40s, and 50s when you may have a mortgage to pay off and/or young children to provide for. Term life insurance policy is usually more affordable because it is only for a fixed duration.

If you die before the term is up, your family receives a set amount of money. The death benefit gets paid as a monthly payment, an annuity, or a lump sum.

When you sign up for term life insurance, you must specify the coverage amount and coverage time. The insurer takes these details into account while calculating your premium rates.

What Happens When Term Life Expires?

As you come to the end of your term, it may be a good idea to revisit your coverage needs. If your family no longer needs the financial protection of life insurance, you can just let the policy expire.

But if you do need coverage, there are three options available:

  • Extend your current term policy – Terms life insurance products are guaranteed renewable. That means you can renew your policy without getting another medical exam.
  • Convert your term policy to a permanent life insurance policy– Does your term policy have a conversion rider? If so, you can convert it into a permanent life insurance policy without having to go through the underwriting process again.
  • Buy a different life insurance policy – If you are healthy and fit, you can apply for a new life insurance policy. However, expect to pay a higher premium rate as the cost of insurance increases with age.

What Is Whole Life Insurance?

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Whole life insurance is among the most common types of life insurance in Canada. It provides coverage for your entire life, as long as you pay the premiums on time. For this reason, whole life insurance also goes by the name of permanent life insurance.

Besides promising a set payout whether you die young or old, a whole life insurance policy includes an investment feature. A portion of your each premium payment gets deposited into a saving component called “cash value”.

Your policy’s cash value grows with interest over time and acts as a financial net to fall back on during uncertain times. You can pay your premium with the policy’s cash value, take out a loan against it, or withdraw it — partially or fully — to ease a rough financial patch. You can even surrender the policy in later years to live off its cash value.

Generally, life insurance costs more than term life insurance. That’s because it has a saving component built into it.

There are many different types of whole life insurance, including the following:

Limited Pay Whole Life Insurance

With a limited pay whole life insurance, you must pay premiums for a specific duration or until you reach a certain age. Once you reach the target age or years, your premium payments stop. However, the policy benefits last your entire life, and cash value keeps growing.

Term-to-100 Life Insurance

This insurance product offers you the best of traditional permanent life insurance and term insurance — life long coverage and affordable premium rates.

Term-to-100 life insurance covers you for your entire life, but its premiums are less expensive than standard whole life insurance. That’s because, unlike the latter, it doesn’t have any cash surrender value. Both the premiums and death benefits are level and unchanging, but your premium payments stop when you reach the age of 100 years.

Participating vs. Non-Participating

A participating type of life insurance policy allows you to share in the profits of the insurer through dividends and participate in the company’s ownership. In contrast, a non-participating policy provides just coverage — nothing else, no dividends, or ownership rights.

Since you receive a portion of the company’s profits as dividends in participating whole life insurance, it typically costs more than non-participating life insurance.

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What Is Universal Life Insurance?

Universal life insurance is whole life insurance with a twist. It provides lifetime coverage and builds cash value, but its premiums are flexible, death benefit adjustable, and cash value growth not guaranteed.

A universal life insurance policy has a minimum and maximum premium amount. It’s entirely up to you how much premium you want to pay, as long as it is with the prescribed range. This kind of flexibility can make it easier to maintain insurance, especially for people whose annual income isn’t fixed.

The cash value growth in a universal life insurance policy isn’t guaranteed. Instead, it depends on how much premiums you pay and how well the market is doing.

Your policy’s cash value earns interest that’s in line with current market rates. While the insurer guarantees a minimum annual interest rate, if the market does better than expected, your cash value will grow faster. Similarly, if you pay more premiums, your cash value will be higher.

You can also adjust the death benefit of your universal policy within the plan limits. Generally speaking, you can lower the death benefit any time but must go through the underwriting process again, which includes a medical test, to increase it.

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Term vs. Whole Life Insurance

If you want to leave a financial legacy or buy an insurance policy that is also a good investment tool, you may want to consider whole life insurance. Term life insurance, on the other hand, appears a better option when you are looking for an affordable way to protect your family financially.

Here’s a quick comparison of term life and whole life insurance to help you decide which one is right for you:

Term Life Insurance

Pros Cons
Offers sufficient financial assistance to clear debts, cover future expenses, and provide a financial safety net If you outlive your policy, your family won’t get a payout
Lasts for a specific period of time. So, you pay only for the coverage you need It doesn’t have a cash value
Cheapest life insurance option Can be expensive to renew after your initial term ends

Whole Life Insurance


It builds cash value over time Expensive premiums
Premium amount is fixed Smaller death benefit

What is Mortgage Life Insurance?

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Mortgage insurance ensures your mortgage lender receives the balance of your mortgage should you die. In other words, the payout goes to the mortgage lender — not your family.

The payout amount is in line with your outstanding debt. That means it reduces over time as you pay down your mortgage. The insurance premiums, however, remain the same throughout the policy term.

Given the inflexibility of mortgage life insurance about who receives the death benefit, a term life policy with ample coverage to take care of your mortgage may be a better deal. If the mortgage reduces, your beneficiaries will have some cash even after clearing the mortgage debt. They can also use the payout as they deem fit instead of paying down the mortgage in full.

All the same, mortgage life insurance has certain advantages. The most notable is that it doesn’t require you to undergo a medical checkup. If you have a severe health condition that makes life insurance impossible, you have no choice but to take mortgage life insurance to protect your home financially.

In certain situations, mortgage life insurance is mandatory. For example, if your down payment is less than 20%, the law requires you to purchase mortgage life insurance.

What is Group Life Insurance?

Group life insurance is one of the main types of life insurance that employers offer to their workers as part of their employee benefit plan. Like any other insurance product, group life insurance has certain advantages and disadvantages.

Three key benefits of group life insurance are convenience, acceptance, and price.

Sometimes enrolment to group life insurance is automatic; other times, it just requires filling up a form. Also, group life insurance doesn’t require a medical exam, which is particularly beneficial for workers who are older or have a severe health condition.

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Additionally, it is much cheaper than other whole life insurance products. Often the employer provides a certain amount of coverage — usually one to two times your salary — for free. If you take extra coverage, you’ll have to pay from your pocket.

Beneficial as group life insurance is, relying solely on it may not be a good idea — because you can’t take it with you.

If you switch jobs, you will lose coverage. Some insurers give policyholders the option to convert their group life insurance into individual life insurance if they leave, but the cost of insurance could shoot up dramatically. Also, a group life insurance product is a one-size-fits-all solution. You can’t customize it as per your needs.

What is the Best Type of Life Insurance for Me?

The insurance needs of no two people are the same. So, assess your situation carefully, check out different types of life insurance available to you, and use the information shared in this post to pick a policy that promises ample financial security to those who love you.

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