How much does life insurance cost in Canada?
What factors affect the cost of life insurance? Plus more answers to all of your questions about life insurance costs.
16 Minute read
Originally Published: March 1, 2022
Updated: July 10, 2024
How much does life insurance cost in Canada?
What factors affect the cost of life insurance? Plus more answers to all of your questions about life insurance costs.
16 Minute read
Originally Published: March 1, 2022
Updated: July 10, 2024
How much life insurance in Canada will cost depends on how much coverage you need, and many other factors. Life insurance companies offer a variety of coverage amounts to suit your specific needs, but they come at varying costs. The more coverage you are looking to obtain; the higher your premiums will be. It is important to consider the affordability of your desired amounts of coverage and consider the other factors that will affect the cost of your life insurance.
In this article:
- What are life insurance premiums?
- What factors affect the cost of life insurance?
- How does age affect the cost of life insurance?
- How does gender affect the cost of life insurance?
- How does smoking affect the cost of life insurance?
- How does health affect the cost of life insurance?
- How does lifestyle affect the cost of life insurance?
- How does the type of life insurance affect the cost of life insurance?
- How do riders affect the cost of life insurance?
- What is life insurance coverage?
- How much do different amounts of life insurance coverage cost?
- How to reduce life insurance costs
What are life insurance premiums?
Life insurance premiums dictate the cost of your life insurance. A life insurance premium is the amount of money paid to your life insurance company for life insurance coverage. This payment is usually either a monthly, quarterly or yearly payment, and the duration will depend on the type of life insurance you choose. For instance, term life insurance means you will only pay the premium for the duration of the term. Whereas, permanent life insurance indicates that you will pay the premium for the rest of your life. Your premiums need to be paid in order to maintain the agreed-upon amount of coverage for the duration of your policy.
What happens if I don’t pay my premiums?
In the event that you stop paying for your life insurance premiums, the life insurance company may be able to deny your coverage. This will depend on the specific terms outlined by the life insurance company. A standard term life insurance policy will be terminated as the result of a missing payment, and your dependents will no longer receive the death benefit upon your passing. A permanent life insurance policy may differ due to the cash value accounts. The money in the cash value account will typically be available to help pay premiums after a certain period of time.
Your policy may also come with a grace period. This is the period of time when your policy will not lapse as a result of nonpayment. However, this clause is not present in most policies. If you are concerned about making life insurance payments on time; be sure to communicate this with your life insurance agent or insurer.
How are premiums used by insurers?
Life insurance companies will use your premiums for a variety of financial endeavours. It is important to find a reputable life insurance company that will manage your payments properly and ensure their ability to pay the guaranteed death benefit. Premiums are usually used to:
The key role of life insurance companies is to offer your loved ones a death benefit, to help them stay afloat upon your passing. This means they need to set themselves in a proper financial position that can guarantee the payout on claims. Most reliable insurance companies have a large amount of money set aside in order to cover outstanding liabilities and ensure beneficiaries receive the money owed to them.
Life insurance companies also have their own expenses they need to cover in order to operate. A portion of your life insurance premiums will go towards these operating expenses and help companies pay salaries, buildings and all other expenses.
Life insurance companies may choose to invest money in order to gain a competitive advantage by offering lower costs on their policies. This promotes greater financial stability and extra assurance for policyholders. This is also how they offer whole life insurance policies, which guarantee an increase in the cash value of your premiums.
What factors affect the cost of life insurance?
Your life insurance cost will vary depending on a variety of factors. For example, see this list of things that are considered when you apply to life insurance.
Most of the following will be considered by your life insurance company prior to providing you with a quote:
Age
As you get older, your life insurance will also get more expensive. Insurers calculate quotes based on your specific circumstances, and your premiums will reflect how high-risk you are. As you age, your risk increases, and this is reflected in the increased cost of your premiums.
Life insurance policies typically increase every year that you age. The most substantial increases occur when you become a senior, usually around age 60. This is something to consider when purchasing your policy, and it is important to plan ahead. If you are purchasing a term policy, you need to consider how much your premiums will increase when your term ends. For instance, if you are a 60-year-old choosing to purchase a 20-year term policy when this term ends, it will be very difficult for you to find an affordable policy as you are now 80.
Depending on your age, you may even be denied coverage by life insurance companies, as many have maximum age limits. These ceilings will differ depending on the company and the type of insurance you are looking for.
Gender
Your gender is also a consideration for life insurance companies. This is because historical data has indicated that women tend to live longer on average than men. For a life insurance company, this means that women are at lower risk to insure and this is reflected in their lower premiums. This information may be outdated, but there is currently not enough data to change the traditional underwriting guidelines.
Those who are transgender, nonbinary or genderqueer may be asked more questions regarding how they identify, but should not have a noticeable difference in premium costs. Life insurance companies are not allowed to increase rates or deny coverage because of your gender identity, hormone medication or history of gender confirmation surgery. Although they do reserve the right to postpone your application until after the surgery. Most companies do not offer gender-neutral options on their life insurance applications. Most insurers tend to operate based on the gender you were assigned at birth.
Smoking
If you are a smoker seeking life insurance, you will face drastically higher life insurance premiums due to the health risks associated with smoking. Statistics indicating that smokers are 23 times more likely to develop lung cancer increases the risk to insure you, and the cost of your insurance will reflect that. Smokers can pay anywhere from 30%-300% more than non-smokers. While there may be no-medical insurance options that will not consider your health record; these options are already considerably more expensive than their alternatives.
In the event that you have quit smoking, your life insurance premiums may still be higher for a period of time. In order to be classified as a non-smoker, you need to have been smoke-free for at least a year. The longer you stay smoke-free, the cheaper your insurance will get over time.
Casual smoking is still considered smoking by life insurance companies due to its highly addictive nature. Even if you only smoke a single cigarette, this will count negatively towards your application. Vaping is also often considered the same as smoking to life insurance companies. Many companies have updated their policies on marijuana, but consuming it may still have a negative connotation and will vary from company to company.
Health
Health has a tremendous impact on life insurance premium costs as certain health conditions are considered risky to insure. Your health and medical history will usually be obtained through a life insurance medical exam which permits access to your medical records. If you have a health condition and are looking for support on finding the right life insurance, read our blog about getting life insurance with many different types of medical conditions.
Insurance companies will look at:
- Your medical history
- Height and weight (BMI)
- Risky behaviours
- Family medical history
Your family medical history is important for life insurance companies to consider due to the genetics involved. Trends in your immediate family’s mortality may indicate a higher chance of you suffering from illnesses or diseases. Illnesses and conditions that suggest a genetic predisposition include:
- Breast cancer
- Cardiovascular disease
- Colon cancer
- Diabetes
- Lung cancer
- Melanoma
- Prostate cancer
If it is found that you suffer from serious health conditions such as cancer, heart conditions, lung conditions and mental illnesses, just to name a few. Your quote will likely be quite high; you may even be denied insurance. In these cases, you can look into no-medical life insurance options, including simplified issue life insurance or guaranteed issue life insurance. Both these options are more expensive than their medical exam included counterparts, but will provide you with some coverage for peace of mind.
Lifestyle
Your life insurance application will also cover information about your lifestyle. Your occupation and hobbies may reflect a high-risk lifestyle that makes it riskier to insure you. This will be considered by your insurer and may be reflected in the cost of your premiums. Some factors that they perceive as red flags include:
- Criminal records
- Driving history
- Dangerous occupations (eg. pilot)
- Dangerous hobbies (eg. rock climbing)
- Financial factors
If your driving record showcases history of DUIs, reckless driving convictions or suspended licenses; you are seen as higher risk. This will increase not only your car insurance but also your life insurance as you will be perceived as a reckless driver. This makes it difficult for a life insurance company to offer you lower premiums.
Financial factors that may negatively affect your life insurance include bankruptcies. Most life insurance companies will typically deny you coverage if you have filed for bankruptcy in the last five years. Your credit score is also a risk some life insurance companies may consider because they fear you will be unable to afford the periodic premiums.
Most of the previous factors are out of your control or based on previous life decisions. But two factors you can cater to your life insurance needs include the type of life insurance you are applying for and life insurance riders.
Type of life insurance
The type of life insurance you choose will directly affect the cost of your premiums. Life insurance is split into 2 major categories: term life insurance and permanent life insurance. These categories are split further into more specific types of policies.
Term life insurance is the more affordable option of the two with lower premium costs. However, these policies do come with an expiration date. Permanent life insurance guarantees coverage for your entire life, but comes at a higher price. Types of permanent life insurance include whole life insurance, universal life insurance and variable life insurance. All these policies vary in costs and the potential for the cash value of premiums growth.
Life insurance riders
Life insurance riders offer additional coverage to create a more all-around protection plan for your beneficiaries. They offer the advantage of extra financial protection beyond your traditional life insurance coverage and sets you up for more unexpected circumstances. However, they do add additional costs to your policy and will result in higher premiums.
Some examples of riders include:
- Critical illness insurance riders
- Family insurance riders
- Accidental death and dismemberment insurance riders
- Benefit structure insurance riders
Riders are a great way to customize your life insurance policy to best suit your needs, but not all riders are right for you. The best way to determine what riders you need is to talk to an insurance advisor.
Contact Protect Your Wealth today at no cost to learn more about what riders suit your needs and enhance your life insurance.
What is life insurance coverage?
Insurance coverage is the amount of risk or liability the life insurance company is responsible for covering. Life insurance coverage helps the loved ones of the policyholder to recover financially in the event of unexpected death. In return, the client is required to pay a periodic fee called a premium. Life insurance coverage provides a measure of financial security to a primary beneficiary and one or more additional contingent beneficiaries through a death benefit. The amount of this benefit is represented by the amount of life insurance coverage the policy states.
The coverage amount of life insurance policies can help pay for:
- Everyday expenses and monthly bills
- Existing long-term debts
- Child care
- Funeral costs
How much life insurance coverage do you need?
One of the primary considerations when purchasing life insurance is understanding why you are purchasing the life insurance and how much money your dependents will need to accomplish these goals. This will help you decide on the coverage amount. The typical approach to estimating the amount you select is multiplying your annual income by 10-15 times. But some important factors to think about include:
Life insurance is a great way to ensure you are not leaving behind any outstanding debts. These debts can include student loans, mortgages, credit card bills, and other personal loans. If your main goal is to leave behind no debt, you can add up the amount of debt you have and use that as a basis for deciding how much coverage you need. Keep in mind that interest exists, and leaving a buffer amount is a good idea.
If you are a vital provider for your family and loved ones, you should consider how large a payout they need to cover your loss of income. While 10-15 times your annual income should be enough to help them stay on their feet, you should also consider the inflation rate.
It is important to think about why you are purchasing a life insurance policy. This can be a combination of reasons. Some of the most common reasons and the percentage of people who consider them a factor are outlined below.
The need to provide loved ones with financial security has only heightened during the pandemic. A recent survey found that 44% of households reported they would face financial hardship within six months if the primary wage earner were to pass away. For 28% of households, financial hardship would hit within one month.
Life insurance coverage calculations
People use one of three methods in order to decide how much life insurance coverage they need. These rules do not provide an exact amount and do not consider many key factors, but they are a good way to estimate an approximate amount of coverage.
Rule 1: multiply your annual income by 10
As mentioned above, multiplying your annual income by 10 is the simplest method for calculating life insurance coverage needs. This rule does not account for savings or the factors mentioned in the previous section but provides a good basis. If money is tight, and the cost of premiums is not affordable, you may choose to multiply by a factor of 5 instead.
This method also does not consider the value of a stay-at-home parent. Although they do not receive an income, their role is vital in many families and valued at least at the cost of a nanny or other forms of child care.
Rule 2: multiply your annual income by 10 and add $10,000 per child
This formula is very similar to rule 1 but adds the consideration of university and education costs. If you have kids, university and other education expenses are an important component of your life insurance calculation. However, this method still does not consider all of your family’s needs, assets or any forms of life insurance coverage already in place.
Rule 3: DIME formula
The DIME formula is the most comprehensive method of the three and considers a deeper look into your finances. DIME stands for debt, income, mortgage and education. These four areas should be considered when deciding on the amount of coverage necessary. They are to be calculated by:
- Debt and expenses – adding up your total debts (excluding mortgage) with the addition of an estimate of your funeral expenses
- Income – decide how many years your family will need financial support upon your death and multiply your annual income by said number
- Mortgage – estimate how much mortgage will be leftover upon your death and calculate how much you will need to pay it off
- Education – estimate how much it will cost to send a child to school, and multiply this value by the number of kids you have
Add all the values for each of the letters together to get a well-rounded view of your needs. This formula places a greater emphasis on your financials but still does not consider your existing coverage and the value of a stay-at-home parent.
See below for a representation of DIME:
Some other tips to help you calculate your life insurance coverage needs include:
- Think of how life insurance fits into your overall financial plan
- Leave a buffer amount
- Talk the numbers through with your family
- Consider buying multiply, smaller life insurance policies
For a deeper understanding of finding the right coverage amount for you, read our blog about How Much Life Insurance Do I Need?
How much do different amounts of life insurance coverage cost?
The amount of coverage you select will have a direct correlation with the cost of your premiums. The higher the amount of coverage, the higher the costs will be. We have collected the cost of different amounts of coverage for different life insurance companies for you to compare and contrast.
How much does 100k of life insurance cost?
How much does 250k of life insurance cost?
How much does 500k of life insurance cost?
How much does 750k of life insurance cost?
How much does 1M of life insurance cost?
How much does 2M of life insurance cost?
How much does 5M of life insurance cost?
How to reduce life insurance costs
Life insurance is a necessary investment for most people, but it can be quite expensive. Here are some things to consider in order to obtain the most affordable option for you:
- Consider how much life insurance you really need
- Get healthier
- Exercise – aim for at least 30 mins of movement a day
- Sleep – 6 hours is a good minimum amount to set for a goal
- Emotional health – maintain relationships and communication with those important to you
- Nutrition – ensure good eating habits with regular meals and healthy foods
- Balance – find time to enjoy leisure activities outside of work hours
- Ask about benefit tiers
- Reconsider the length of your policy
- Look for hidden fees (may not be useful for your situation)
- Accidental death benefit – if the insured’s death is an accident, the payout is increased (often doubled)
- Waiver of premium rider – if the insured becomes disabled, this rider will waive the payment of premiums. This is similar to an insurance policy that pays the mortgage if the homeowner loses his or her job or becomes disabled
- Disability income rider – with this rider, you’ll receive a certain amount of income should you become disabled
- Term conversion rider – want to convert your term insurance policy into a whole or universal life policy? The term conversion rider gives you that option.
- Accelerated death benefit rider – if you become terminally ill, you can collect some of your life insurance proceeds
- See if term life insurance is a viable option for you
- Compare and contrast many different insurance policies
Finding the right life insurance for you
The amount of coverage you need will differ from person to person and may be difficult to estimate. However, different types of policies exist for your specific situation and you can work with an advisor to find the one that best suits your needs.
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.
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, British Columbia, and Ontario, including areas such as Burlington, Calgary, Red Deer, Richmond, and Vancouver.
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