Couples Guide to Life Insurance in Canada

Welcome to our guide to all that you need to know about life insurance for couples in Canada

30 Minute read

Originally published: December 7, 2022

Couples Guide to Life Insurance in Canada

Couples Guide to Life Insurance in Canada

Welcome to our guide to all that you need to know about life insurance for couples in Canada

25 Minute read

Originally published: December 7, 2022

Couples Guide to Life Insurance in Canada

Welcome to our Couples Guide to Life Insurance in Canada! Life insurance is an important part of financial planning for couples, as it is the most common way to protect your family’s financial future in the event of an unexpected death. In this blog, I will discuss the types of life insurance available for couples, joint life insurance, how joint life insurance works, cost of life insurance for couples and more. I will also provide tips on how to choose the right policy for you and your partner, as well as how to make sure that your life insurance coverage is adequate for your situation. Finally, I will discuss some of the taxes and other costs associated with life insurance and how to plan for them. Thanks for reading and I hope you find this information useful.

Life Insurance for Couples

Life insurance for couples in Canada is available from a variety of life insurance providers across Canada. Couples can purchase life insurance policies that cover both spouses as a couple, these are called joint life policies. Alternatively, they can purchase individual policies for themselves as individuals which is also a popular option for couples. Depending on the type of policy and the coverage desired, couples can obtain life insurance for their own protection, to protect their financial future, or to provide for their families in the event that they pass away. Couples may also purchase life insurance policies with a spousal rider, which offers additional protection for the surviving spouse in the event one couple dies. Overall, there are tons of life insurance options that couples could purchase which are best for their situation. 

Is Life Insurance for Couples Worth It?

Yes, life insurance can be worth it for couples in Canada. Life insurance can help provide financial security to both partners in the event of an unexpected death or disability, providing them with the financial resources they need to maintain their lifestyle and take care of their family. It can also help protect their assets in the event of death or disability and provide tax-free income to the survivors. Life insurance is an important part of financial planning for any couple, and it can be particularly beneficial for couples in Canada. In general, life insurance is worth it in Canada for families of all sizes. It provides financial protection for you and your family in the event of your death or disability. It can help provide for your family’s financial needs, pay off debts, and help with your funeral expenses. Keep in mind that there are many types of life insurance available in Canada, so it is important to do your research and find the right policy for your needs. If you want to see if life insurance is worth it, read our blog: Is Life Insurance Worth It Canada?

Types of Life Insurance for Couples

There are many different types of life insurance policies available for couples, and the right one for you will depend on your specific needs and circumstances. Some common types of life insurance for couples include term life insurance, permanent life insurance, and Joint life insurance.

What is a Term Life Insurance Policy?

Term life insurance is a type of life insurance policy that provides a death benefit for a pre-determined amount of time, typically 10, 15, 20, or 30 years. If the insured individual passes away during the term, the beneficiaries will receive the death benefit. Term life policies do not typically accrue any cash value, so once the term is over, the policy ends and no further benefits are paid out. Rather, you will have to renew your policy or purchase another policy. The thing is, term life insurance policies are the best life insurance policies in Canada because they provide the highest coverage amounts possible and are the most affordable. 

What is a Permanent Life Insurance Policy?

A permanent life insurance policy is a type of life insurance policy that provides lifelong coverage, as opposed to term life insurance which provides coverage for a set period of time. Permanent life insurance policies are typically more expensive than term life insurance policies, but they also offer additional features such as a cash value component. This cash value component allows policyholders to borrow against the value of their policy and use the funds for various purposes such as wealth building, investment, and retirement planning.This component is found in whole life insurance and universal life insurance these have some interesting functions so check out our blog on it here, and check out this table to see the differences:

WHOLE LIFE

UNIVERSAL LIFE

Premium Flexibility

  • Bundled premium which includes cost of insurance and investment.

  • Premium is level for life of the policy.

  • Premium can be for both insurance and investment or insurance alone.

  • Premium can either be level or increasing yearly.

Premium vs. Face

Amount of Insurance

Higher premium than comparable Universal Life

Lower premium than comparable Whole Life policy

Investment

Options Within Policy

  •  No investment options available, completely managed by Whole Life fund managers.

  • Easier to manage with no need to monitor investment account.

  • Wide variety of investment options, however self managed.

  • Must select from Insurance companies investment funds.

Impact of Market

Conditions on Cash Values

  •  Cash surrender value increases with dividends received from policy.

  • Cash surrender value cannot decrease no matter market conditions.

  • Account value may fluctuate with market conditions.

  • Investment returns completely dependent on policy portfolio.

Missed Payments

Paid for by Automatic Premium Loan from cash surrender value, if available

Premium paid directly from account value, if available

Advantage of Monthly

vs. Annual Premium

Policy offers discount when paid annually upto 12%

No difference if paid monthly or annually

What is a Joint Life Policy?

A joint life insurance policy is a type of life insurance that covers two people, typically a married couple. This type of policy provides a death benefit to the beneficiaries of the policy in the event that either person dies during the policy term.

Joint life insurance policies are typically less expensive than two separate individual life insurance policies, because they only require one application and one set of underwriting procedures. This can make them an attractive option for couples who want to save money on their life insurance coverage.

A joint life insurance policy covers both partners for the same amount, requiring only one monthly premium instead of two. Upon the payout of the policy’s total coverage amount, the policy will terminate. For instance, if the policy has a $500,000 coverage amount, both partners are covered and the beneficiary will receive the full $500,000 upon the death of one of the policy holders.

What is joint life insurance

Types of Joint Life Policy

There are two main types of joint life insurance policies: joint first-to-die policies and joint last-to-die policies.

When considering a joint life insurance policy, it’s important to carefully review the terms and conditions of the policy and make sure it meets your needs and those of your family. When shopping for life insurance for couples, it’s important to compare quotes from multiple insurers to find the best policy for your needs and budget. It’s also a good idea to work with a life insurance broker who can help you understand the different types of joint life insurance policies and choose the right one for you. You can contact our team of life insurance brokers who will help you find the right life insurance policy for you and your partner, just contact us now, it is totally free. Let’s continue our Couples Guide to Life Insurance in Canada and take a closer look at the different types of joint life insurance.

Joint First-to-Die life insurance policy

Joint first-to-die policies provide a death benefit when the first person covered by the policy dies. After the first death, the policy typically ends, unless it includes a conversion option that allows the surviving spouse to convert the policy into an individual policy. 

A joint first-to-die life policy is helpful for those who share a common obligation, such as a mortgage, as the death benefit is paid out upon the first death. This type of policy can also be used to replace income when both spouses have similar salaries and to pay off business liabilities if two or more partners are involved. After the death benefit is paid out, the policy ends and the survivor must apply for a new policy to maintain coverage. Generally speaking, this type of policy is more cost-effective than purchasing two single life policies.

Joint first-to-die policies provide some unique advantages, such as insurability privilege and the possible double payout upon the simultaneous death of both insureds. For the insurability privilege, a surviving insured may acquire additional life insurance coverage without having to go through medical underwriting. This coverage, however, is more expensive as the premium is recalculated based on the age of the surviving insured, and there is usually an age limit for eligibility of the second insured. Regarding the double payout benefit, certain companies offer an additional payout to the beneficiary if both insureds pass away together or within a short time of each other.

Joint last-to-Die life insurance policy

Joint last-to-die policies, also known as survivorship policies, provide a death benefit when the second person covered by the policy dies. These policies are often used by couples to provide financial support for their children or other beneficiaries after both spouses have passed away.

Upon the death of the last of the two people covered by the policy, the death benefit is paid out to the beneficiaries. This is similar to a single-person life policy. This type of life insurance is also known as second last-to-die or survivorship life insurance. Although it does not provide a financial benefit to the surviving partner, it is beneficial for paying off final costs or debts or leaving an inheritance for children. The surviving partner must keep paying the premiums to remain covered and assets such as RRSPs and a cottage can be transferred to them tax-free, deferring taxes until the second death.

Check out this table showing the differences between Joint first-to-die life insurance and joint last-to-die life insurance policies:

Types of Joint Life Policies

Why Should I Get Joint Life Insurance?

Joint life insurance is a great option for couples who want to save money, as it is usually cheaper than individual policies. It also provides a greater amount of coverage for both parties, as the same policy is in effect for both lives of the insured members. Joint life insurance also helps to ensure that both parties are taken care of in the event of one spouse’s death, as the surviving spouse would receive the full benefit of the policy. Finally, it can provide a sense of security and peace of mind knowing that both you and your partner are protected.

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Pros and Cons of Joint Life Insurance for Couples

There are valid pros and cons to joint life insurance for couples. Overall, the decision to purchase joint life insurance should be based on an individual’s specific circumstances and needs. It can be a good option for couples who want to save money on life insurance and want the convenience of a single policy, but it may not be the best choice for everyone. To figure out what is the best option for you, please talk to our life insurance brokers who can analyze your needs with a needs assessment and figure out the options that are available to you and your partner.

Pros and Cons of Joint Life Insurance for Couples

To find more about these pros and cons please take a look at our blog: Single Life vs Joint Life Policies

Joint Life Insurance vs Individual Life Insurance

Joint life insurance is a type of life insurance policy that covers two people, usually a married couple, on one policy. It pays out a death benefit to the surviving partner when one partner dies. Individual life insurance is a policy that covers one person and pays out a death benefit to the beneficiary of the policy upon the death of the insured individual.

Joint life insurance is often the more cost-effective option for couples because it typically has lower premiums than two individual policies. It also offers the convenience of having one policy and one set of premiums to manage. However, it lacks flexibility in that it cannot be divided when the couple separates.

Individual life insurance offers more flexibility as it can be customized to meet the individual’s needs. It also allows more control over who the beneficiary is and how the death benefit is distributed. The premiums for individual policies tend to be higher than joint life insurance, however.

One of the main differences between joint life insurance and individual life insurance is the way that the premiums are calculated. With joint life insurance, the insurance company considers the combined risk of both individuals when setting the premium. This means that the premium for a joint policy may be lower than the total cost of two individual policies. With individual life insurance, the premium is based solely on the risk of the insured individual, and is not influenced by the health or age of anyone else.

Another key difference between the two types of life insurance is the way that the policy pays out. With joint life insurance, the policy only pays out once, typically when the first insured individual passes away. This means that if the second insured individual dies, they will not be covered by the policy and their loved ones will not receive any benefits. In contrast, individual life insurance policies pay out separately for each person, so each policy would pay out if the insured individual passes away.

In general, the decision to purchase joint life insurance or individual life insurance will depend on specific circumstances and needs. Joint life insurance may be a good option for couples who want to save money on life insurance and want the convenience of a single policy, while individual life insurance may be a better choice for individuals who want the peace of mind of separate policies.

What Happens to a Joint Life Insurance After Divorce?  

If a couple decides to end their relationship, they need to consider the implications of their joint life insurance policy. Depending on the type and terms of the policy, they may be able to keep the coverage in their own rights, or may need to cancel it in order to divide the coverage and benefits between them. In some cases, such as when there are children from a prior relationship, it may be necessary to change the beneficiaries of the policy. It is important to consult a life insurance broker for advice on the best way to handle joint life insurance policies during and after a divorce.

Can You Get a Joint Life Policy if You’re Not Married?

No, it is not necessary to be married to purchase joint life insurance. Couples and common-law partners, as well as business partners, can get a joint life insurance policy to provide financial security for the surviving partner after the death of one of them. The key requirement is having an “insurable interest” in the life of the other insured, which can be connected to either a personal relationship or through shared business interests. Joint life insurance gives the assurance that your loved ones will be taken care of should something happen to you or your partner, no matter your marital status.

What is the Best Life Insurance for Couples

There are many great life insurance options for couples so it is tough to figure out what you need for your exact situation. Luckily, we can help you understand your options and then you can figure out the best option for you. As a couple, the best life insurance option is typically two individual life insurance policies, the reason being is that the prices are affordable and the coverage amounts are very high. Second to this would be a joint life policy because of the affordability. Keep in mind that when you consider factors such as age, health, smoking status, family health history, getting a fully underwritten life insurance policy might not be suitable, rather there are also simplified and no-medical life insurance policies that might be best for those who have health issues. To find out what the actual best life insurance policy is for you and your partner, the best thing to do is contact our life insurance brokers as they can find you several different options and can get a good understanding of your needs and wants for a life insurance policy. 

What Couples Should Think About Before Buying Life Insurance

Before purchasing life insurance, couples should carefully consider their specific circumstances and needs. Some important factors to consider include:

  • The amount of life insurance coverage needed: Couples should evaluate their financial obligations and determine how much life insurance coverage they need to protect their loved ones in the event of their death.
  • The type of life insurance policy: There are several different types of life insurance policies to choose from, including term life insurance, whole life insurance, and universal life insurance. Couples should research and compare the different options to determine which type of policy is right for them.
  • The premium and policy terms: Couples should carefully review the premium and policy terms of any life insurance policy they are considering. They should make sure that the policy is affordable and offers the coverage they need.
  • The insurance company: It is important to choose a reputable and financially stable insurance company that has a good track record of paying out claims. Couples should research and compare different insurance companies to find one that meets their needs. There are great life insurance companies in Canada. Check out the best life insurance companies in Canada here!
  • The need for joint life insurance: Couples should also consider whether a joint life insurance policy is right for them. Joint life insurance can be more affordable and convenient than two separate policies, but it only pays out once and may not be the best choice for everyone.
  • The need for other types of insurance: In addition to life insurance, couples may also want to consider purchasing other types of insurance, such as critical illness insurance, disability insurance, and other riders like children’s insurance. These policies can provide important protection for both individuals in the event of an illness or injury.

Cost of Life Insurance For Couples

The cost of life insurance for couples in Canada varies depending on the age, health, lifestyle, and coverage amount desired of the couple. Generally speaking, the average cost of life insurance for couples in Canada ranges from $20 to $50 per month for a basic policy, with costs increasing with additional coverage. 

In general, joint life insurance policies are typically more affordable than two separate policies for the same amount of coverage. This is because the insurance company considers the combined risk of both individuals when setting the premium, and the policy only pays out once, rather than twice. However, the exact cost of a joint life insurance policy will depend on the specific circumstances of the insured individuals.

To get an idea of the cost of life insurance for couples, you can contact our team of life insurance brokers to compare quotes from different insurance companies. These tools will typically ask for some basic information, such as the age and health of the insured individuals, the amount of coverage desired, and the type of policy desired. Based on this information, the tool will provide quotes for different policy options, allowing you to compare the cost of different policies and choose the one that best meets your needs and budget.

It is important to keep in mind that the cost of life insurance can vary greatly depending on the factors mentioned above, so it is important to compare quotes from multiple insurance companies to find the best option for your situation. Get a quick quote now!

How much coverage do I need? 

Finding out how much life insurance coverage you need is one of the most important things that you should have an idea of before you buy life insurance. It is fine if you don’t know how much you exactly need because life insurance brokers will help you do a needs assessment to pinpoint exactly how much life insurance you will need, but nonetheless it is good to have a general understanding of how much life insurance you will need. There are two main ways to do this, the most accurate one being the DIME formula, this calculates your debts, income, mortgage and possible education cost for your child. 

Using the DIME formula to help figure out how much life insurance coverage you need.

Another common life insurance calculation that can give you a general number quickly is the ten times method, which is basically your income times ten. For example if you make a yearly income of $60,000 then multiply that by 10, therefore $60,000 X 10 = $600,000 so now you know that you will generally need around $600,000 in life insurance coverage which will provide your loved ones with enough income to continue their lives without financial burdens and stress in the case you pass away. 

Life Insurance and Taxes for Couples

The tax rules for life insurance in Canada depend on the type of policy and the circumstances of the policyholder. Generally, premiums paid for life insurance are not tax-deductible, but death benefits are usually tax-free.

For couples, if one partner is the policyholder and the other is the beneficiary, the premiums paid are not tax-deductible. However, if the policy is held jointly, the premiums paid may be tax-deductible up to certain limits. The death benefit received by the surviving partner would be tax-free.

When a person passes away in Canada, the market value of all their worldly possessions is considered to have been disposed of. As a result, any capital gains from investments – such as property or shares – are subject to a tax bill. The deceased’s estate is required to submit a final tax return, which declares income and pays this bill. Insurance coverage can provide the funds necessary to pay this bill, without having to liquidate assets. This ensures that the deceased’s family can inherit those assets in full. The only exception to this is if the deceased had a surviving spouse or common-law partner, as they can receive full ownership of the deceased’s assets without having to pay capital gains tax.

How Much Life Insurance Coverage Do Couples Need?

Factors such as income, age, number of dependents, debts and other financial obligations should be taken into consideration. Additionally, other factors such as the amount of time the partner will need to adjust to being single and the amount of money needed for retirement should also be taken into consideration. To determine how much life insurance coverage a couple needs, it is important to evaluate their specific financial circumstances and obligations. Some key factors to consider include:

  • Current and future income: The couple should consider their current and future income, as well as any potential changes in income, such as promotions, raises, or career changes.
  • Outstanding debts and expenses: The couple should also consider any outstanding debts and expenses, such as mortgages, car loans, credit card balances, and medical bills.
  • Future expenses and goals: The couple should think about any future expenses and goals, such as paying for their children’s education, starting a business, or retiring early.
  • Other sources of income and assets: The couple should also consider any other sources of income and assets, such as investments, savings, and retirement accounts.

Based on this information, the couple can estimate the amount of life insurance coverage they need to protect their loved ones in the event of their death. It is generally recommended to have a life insurance policy that is worth at least 5-10 times the couple’s annual income, but the exact amount will depend on their specific circumstances and goals. We also recommend that you can use the DIME formula to find out what a more accurate estimate can be. 

The DIME formula

The DIME formula practically looks into your debts, income, mortgage, and potential post-secondary education costs of your dependents. This generally allows for people to get a more accurate number which represents how much life insurance coverage that they will need. Check out this graphic to get a better understanding of the DIME formula:

Couples Case Studies

These are some examples of couples who may benefit from purchasing life insurance. The decision to purchase life insurance will depend on the circumstances and needs of each couple. Couples should carefully evaluate their financial situation and goals before deciding whether life insurance is right for them. The best way to find this out is to contact a life insurance broker to look into your options. Here are some case studies of couples who should get life insurance and some couples who shouldn’t. 

Case Study #1

Chris and Robin are a young couple who are both in their early 30s. Chris has been working for tech companies since graduating university and Robin is a lawyer. They do not own a house yet, but plan to in the near future because they want to raise a family. This couple will definitely benefit from purchasing life insurance. If one or both of the individuals were to pass away, the life insurance policy would provide financial support for the surviving spouse, helping to cover expenses such as mortgages, car payments, and future childcare, or education costs if they do have a child in the future. A good recommendation would be to get a joint life policy or individual life insurance policies for even better coverage. 

Case Study #2

Boris and Rosa are a couple with a high net worth, they are both business owners and are in their 40s, they have a child who is still in elementary school but they plan for their child to go to college or university. Since they are a couple with a high net worth may also benefit from purchasing life insurance. In the event of one the individuals passing away, the life insurance policy could provide funds to cover any outstanding debts, taxes, or other expenses, and could also provide financial support for the surviving spouse and any beneficiaries. Additionally, since they both own a business, they will also need funds to either continue to business or handle the loss of the business. Individual life insurance policies are highly recommended in this case. 

Case Study #3

Rob and Amy are a married couple in their early forties. They both work full-time and have two teenage children. Rob is self-employed and his income is often unpredictable, so they want to make sure that their family is secured if something were to happen to either of them. This couple should purchase a joint life policy if they enjoy the affordability of it, they need life insurance in order to protect their spouse and to protect their children from any financial burdens that can be caused if one of the couples were to pass. 

Conclusion: Couples Guide to Life Insurance in Canada

Getting life insurance as a couple has many pros and cons to it. Every couple has a specific situation that might lead to life insurance being a great option for them. This being said, there are some things to think about if you are married or in a relationship and are thinking about getting life insurance. There are great life insurance options out there for you such as an individual or a joint life insurance policy. There are some things that couples should also keep in mind such as taxes and divorce, which can really complicate their life insurance policy. You might also want to find out how much life insurance coverage you need, this can be done with a life insurance broker who will create a needs assessment with you, or you can do an estimate with the DIME formula. We hope you found our Couples Guide to Life Insurance in Canada useful, please don’t hesitate to reach out to us to find out what the right life insurance plan is for your specific situation. 

So, is life insurance worth it for couples in Canada?

Having life insurance can be vitally important when it comes to protecting your estate, business or loved ones from any financial strain in the event of your death. There are numerous cases that demonstrate that anyone with assets or financial obligations should have a life insurance policy to safeguard them.

At Protect Your Wealth, we work with and compare policies and quotes from the best life insurance companies in Canada to create the best solution for you and your needs. We’ve been providing expert life insurance solutions since 2007, including no medical life insurance, term life insurance, and permanent life insurance, to build the best package to give you the protection you need. You can even get free professional advice from an award winning broker from Protect Your Wealth to help you identify and secure the right life insurance coverage you need to create financial stability and protect your family and assets.

To schedule a consultation about your income protection goals, or if you have any questions about life insurance in Alberta, British Columbia, or Ontario, please contact Protect Your Wealth or call us at 1-877-654-6119 to talk to an advisor today! We’re proudly based out of Hamilton, and service clients anywhere in Alberta, B.C., or Ontario, including areas such as Edmonton, Victoria, Toronto, Red Deer, Vancouver and Oakville.

Frequently Asked Questions (FAQs) about life insurance for couples 

 

Yes! You can absolutely get life insurance if you have any health or medical issues. There are certain types of life insurance products, like no medical or guaranteed issue life insurance policies, designed specifically for this situation. If you’ve been denied a life insurance policy in the past, these are a great option for you. Want to know more? Check out our blog Guide to Life Insurance with a Medical Condition.

No, there is no cap, and having more than one policy can sometimes be beneficial for your financial needs.

This depends on the particulars of your life insurance coverage. If your policy is revocable, this means you can switch the beneficiary on file without alerting the previous beneficiary. However, your policy may be irrevocable, meaning the policy owner is unable to change the beneficiary without the original person’s approval.

Life insurance in Canada has great rates and plans that are tailored to fit your lifestyle and budget. It also offers riders such as critical illness and disability riders, which protect you and your loved ones from financial strain in the event of death, critical illness, or disability. By investing in life insurance, you can have peace of mind knowing that you are covered for any unexpected events.

Term life insurance is the most basic and cost-effective type of life insurance. You pay a fee for a predetermined stretch of time, commonly ranging from 5 to 30 years. If you die within that period, then your family or the designated beneficiary will receive a monetary payout. People usually buy term life insurance for 20-30 years to guarantee coverage until their child is financially independent.

Yes, depending on the type of joint life insurance you purchase, the benefit will be paid out upon either the first or last death of the insured. In either scenario, there is only one lump sum payment of the coverage amount.

Joint life insurance can be a great option for young families or business partners who want an affordable and accessible coverage option. It’s cheaper than two single life policies and much quicker and simpler to set up, so you can get the coverage you need without the stress.

To determine exactly how much life insurance you need, it is best to consult with a life insurance broker. However, a rough estimate can be made by multiplying your annual income by seven or ten. This amount should cover your family’s current and future financial obligations, such as debts, income, mortgage, and education costs (using the DIME formula). This number will ensure that your family’s standard of living is maintained and they are shielded from any financial difficulties.

Before making a decision on joint life insurance, a married couple should evaluate their financial objectives and preferences. Consulting with a life insurance broker and financial advisor can assist both partners in determining whether joint life insurance is an appropriate choice.

Now that you have read our Couples Guide to Life Insurance in Canada. Talk to an advisor today for FREE.

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