Life Insurance in Canada: Advisor-Guided Insurance Planning

Implementing life insurance in Canada is a crucial financial decision, particularly for parents with young children, as it ensures the continuation of their current quality of life in the event of a premature death. Additionally, for high-net-worth individuals, incorporating an increasing death benefit permanent life insurance at a younger age can facilitate tax-free wealth transfer and enhance the inheritance for heirs.

What Is Life Insurance?

family life insurance

Life insurance is, simply put, a contract where the insurer agrees to pay your beneficiaries a lump sum amount in case the life insured dies at some point in the future while the contract is in place, in return for premium payments.

It’s designed to help protect your dependents or loved ones from the financial risks of death. Impact of which is especially high for families with underaged kids, since they aren’t able to financially support themselves yet.

How Does Life Insurance Work?

Life insurance policies all offer a death benefit in exchange for paying premiums to the insurance provider during the term of the policy.

One popular type of life insurance—term life insurance— only lasts for a set amount of time, such as 10 or 20 years during which the policyholder needs to offset the financial impact of losing income.

Permanent life insurance also features a death benefit but lasts for the life of the policyholder as long as premiums are maintained and can include cash values that build over time.

In essence, a life insurance contract states that the insurance company is obligated to pay your beneficiaries an agreed-upon sum of money—the death benefit—in the event of your untimely demise, in exchange for a lump sum or periodic premium contributions from the life-insured or policy owner.

Why Do I Need Life Insurance?

Life insurance provides financial security for loved ones who depend on your income, offering peace of mind in the face of unforeseen circumstances. Beyond covering immediate cash needs, it can also address outstanding debts like mortgages or business loans, ensuring that your dependents can manage these financial obligations in the event of your death.

How much Life Insurance Do I need?

The best way to calculate how much life insurance you would need is to run life insurance needs analysis or, simply. This takes into account all your financial obligations such as income, consumer or business debts, mortgage balance, post-secondary education costs of your children, your own final expenses, and any bequests that you may have for your loved ones or your favorite charity.

Calculating for each of these obligations and summing them up gives you the total amount of life insurance you should implement to fully protect your loved ones from the financial impact of potential premature death. 

Debts ($23,800.00 – average consumer debt in Canada)

Income ($1,000,000.00 – capital needed to replace your income based on the 4% rule)

Mortgage ($450,000.00 – your outstanding mortgage balance)

Education ($80,000.00 – your children’s estimated education costs after high school)

Final Expenses ($50,000.00 – funeral costs and any immediate cash needs such as final taxes)

Bequest (optional) ($100,000.00 – charity or legacy)


Total Life Insurance Needs ($1,703,800.00)

Based on my experience as a financial advisor, the total life insurance needs are determined to be $1,703,800. While this figure may initially seem daunting to many Canadians, it is a comprehensive calculation that includes all financial obligations. An alternative, simpler approach for most individuals is to calculate life insurance needs by considering income replacement and final expenses.

Income replacement life insurance can be calculated using two methods:

10 to 20 Times Your Annual Income

house, car, family

The first method of determining how much life insurance you need for income replacement purposes is by multiplying your income between 10 or 20 times, depending on your specific situation. If you have young kids and you’re fairly young yourself, I would suggest that you take out 20 times your current income.

Say you’re making $50,000.00 a year before taxes, you should have at least one million dollars of coverage.

“A million dollars? But I don’t have that kind of money yet.”

Exactly the point, should you pass away prematurely, you may no longer be able to have a million dollars to leave your family with because you can no longer work nor invest to have that kind of money. It takes time to build a million-dollar net worth but you can instantly leave your family with a million-dollar, and do it tax-free through life insurance.

So, what can a million dollars of life insurance payout give your surviving loved ones?

Nope, they can’t live in luxury, and while they can (temporarily), I wouldn’t suggest they do so because a million dollars isn’t as glamorous as it once was but it can provide the necessary capital to replace between $40,000.00 to $50,000.00 of annual income when invested wisely.

Following the 4% rule, with one million dollars of invested capital, the safe withdrawal amount is $40,000.00 a year, which equals 80% of the deceased person’s income.

You may think that this calculation is somewhat short of the actual amount to replace your income, in this case, you may want to use the 4% rule below.

The 4% Rule

The 4% rule is based on the retirement withdrawal rule of thumb of 4%. Experts say that a person is considered retired when he or she can already live off 4% of his or her liquid assets.

With this life insurance calculation, we divide your annual income by 4%. So, again, if you’re earning $50,000.00 a year, you’re easily worth $1,250,000.00 to your loved ones. This is actually the best way to determine your economic value to your loved ones. $1,250,000.00 invested will give your loved ones $50,000.00 a year based on a 4% average rate of return.

The person who was earning $50,000.00 a year is no longer there but the income was replaced through proper planning.

Once we’ve determined how much capital your family would need to replace part or 100% of your income, we then add between $25,000.00 to $50,000.00 for final expense purposes. I personally go with $50,000.00 to take into account any other immediate cash needs that may arise as a result of the person’s death and inflation.

The life insurance calculation described above is for Canadians who are actively working and have income responsibility. If you’re someone who has assets to leave, you may consider calculating the tax liabilities of these assets to your heirs. In Canada, there’s no such thing as inheritance tax but your estate may be looking at such a high capital gains tax at your death since your assets and investments are considered to have been disposed of before your death.

What Is Life Insurance Used For?

Life insurance is a financial risk management solution that Canadians can use to hedge against the financial risk of death. As such, it can be used for the following purposes:

young family

To Replace a Breadwinner's Income

Life insurance serves as a crucial tool for replacing the income of an individual or their spouse in the event of premature death. For couples with underage children, having an income replacement life insurance policy is particularly vital, as it provides the necessary capital to sustain the family’s financial needs and alleviate the burden caused by the untimely death of a breadwinner. 

With proper planning and sufficient coverage, life insurance ensures that loved ones have a financial safety net to cover bills and living expenses, offering peace of mind in the face of potential tragedies.

Work with Us!

We'll help you design a well-thought-out life insurance policy that's specific to your needs, financial situation, and future goals.

There are a lot of types of life insurance and for different purposes. Working with a professional insurance advisor helps you understand which one is right for you, what the benefits are, for how much, and how long the coverage is.

We can also design a policy that builds equity over time, much like buying a house compared to "renting", where you're actually saving instead of wasting money on a policy.

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To Pay Off Consumer Debts

The average consumer debt in Canada (as of this writing) is around $23,800.00. Most of the things we have (or think we have) are owned through financing. In case of premature debt, life insurance can pay off a person’s debt so it doesn’t burden his or her survivors, especially one’s spouse, who’s usually also named as a joint debtor in most financing contracts.

To Pay off Outstanding Mortgage

When a family buys a home, there are usually at least two-income that qualifies for the mortgage, when one of the mortgagees passes, the surviving spouse would need to qualify for the mortgage on his or her own come when the mortgage term ends.

If you want to ascertain that your loved ones will not lose or need to sell your family home in case one of the breadwinners passes away during the term of the mortgage, it’s a good idea to implement a mortgage protection term life insurance, so they can pay off the mortgage balance when the mortgage renewal is up and will no longer need to qualify for a mortgage loan with lesser income.

To Pay for Funeral Expenses and Taxes at Death

Your funeral expenses are one of the financial responsibilities that your loved ones may have to take care of after your death. However, there’s no worse thing than not being able to provide for this obligation because you’ve left your family with no money behind.

Unfortunately, the average funeral services and burial expense in Canada is around $25,000. That’s a lot of money that not your loved ones may not have readily available.

With life insurance benefits, however, you can at least be sure that your loved ones will get some financial help with the costs of burying you after your death.

Use Life Insurance to Avoid Probate Fees

Life insurance death benefits paid out to named beneficiaries are not subject to tax and therefore avoid probate. If you leave a legacy to your heirs through life insurance, they don’t have to worry about probate fees or taxes deducted from their inheritance.

When the deceased’ estate is the named beneficiary, the life insurance proceeds will then be subject to probate fees but the money needed to pay for taxes on assets and/or investments that are passed on to one’s heirs (considered to have been disposed of before death) is already part of the estate, any taxes due can be paid off by the estate before distribution because it’s harder to try to get back money from family members to settle any taxes due after they’ve already received it.

Pay for Taxes Due on Inheritance

Most elderly think that they’re leaving money and assets to their children when they pass away without giving any thought to possible tax liabilities that their heirs may have to deal with on these inheritances.

While there’s no such thing as inheritance tax in Canada, all assets and investments that you leave to your next generation are considered to have been sold or “disposed of” before death. This means that while your children won’t have to pay any inheritance taxes, your estate (through your executor) will have to settle any capital gains earned by your assets and investments through property appreciation or investment growth on your final tax return.

Life insurance can provide the necessary funds for any taxes due at death.

Leave a Tax-free Legacy

Did you know that you need not have millions to leave millions to your next generation, and do it tax-free?

Life proceeds in Canada are usually tax-free, you can leave a sizeable legacy to your next generation without them having to deal with taxes. This means that they receive the full amount, tax-free.

Say, you’re a high-net-worth individual and you want to leave at least 1 million dollars to each of your kids (or grandkids), instead of leaving their inheritance in any other asset form or investments, which may incur tax-liabilities at death, you can simply apply for life insurance for such amount and put your heirs as the named beneficiaries. When you eventually pass away, a cheque is issued to each of your beneficiaries, and they don’t have to pay any taxes on your legacy.

To Create an Income Trust

A life insurance trust is an investment trust in which the proceeds come from the dying person’s life insurance policy.

Life Insurance Trusts are generally used when someone dies to provide financial security for their spouse and/or children.

The proceeds of the policy are invested by a trustee in order to generate income that can be used by beneficiaries who may not have any other sources of income, especially if you are the main breadwinner of the family – i.e., the family’s money-making machine.

Life Insurance Types in Canada

weighing scale

Life insurance can be divided into three main categories based on the amount of financial protection it provides. These are life insurance for “major financial obligations”, term life insurance, and permanent life insurance. Each has its own benefits and suitability for different people at different stages in their lives.

Life insurance planning depends entirely on what stage of your life you are in right now while considering your future goals and aspirations.

  • You may be at a stage where you’re just starting out in your career with a young family and a high mortgage obligation.
  • You may be at a more established point in your career and family life and with assets or businesses that you want to protect.
  • or you may be at a point where you’re looking to secure your assets or legacy, ready to be passed on to the next generation.

Whatever stage in your life you are in right now, a well-planned Winnipeg life insurance solution should provide you with the peace of mind you need knowing that all your current assets and obligations are well protected.

Your specific life insurance needs will, of course, have to depend on your personal circumstance and as opposed to what you may have been advised before, there are no one-size-fits-all insurance solutions for everyone as each individual and family have different financial situations and future goals.

For most people, the most basic asset that needs protecting is their ability to work at a job or business to provide income for themselves and their families. Once this ability is stripped off a person, the income that he or she brings in for the family stops and there are three general life scenarios that can affect our ability to work for income and they are the occurrence of disability, critical illness, or death.

As I’ve mentioned in one of my articles, the death of a breadwinner has the single, biggest negative impact that will change a family’s life forever. This in itself is a reason enough why you have to implement the proper life insurance protection especially when you have a young family.

Of course, you may be at a stage in your life where you need more financial protection than simply protecting your ability to work for income, you may have more assets or obligations to protect and we have to consider all those when planning your life insurance protection.

On average, most people’s obligations are classified into permanent and temporary; the good news is, most of your financial protection needs are temporary that only need to be in place in the next ten, twenty years or thirty years depending on your age and/or circumstances.

Needs that you can not put an end date to are considered permanent needs, our final expenses (funeral and taxes at death) for example are considered and will always be classified as permanent needs due to the fact that we don’t know when we are going to pass away.

Other financial needs at death that are considered permanent are legacies, charitable donations, and property disposition taxes.

To address these variable financial protection needs, there are generally two types of life insurance and are Permanent Life Insurance and Term Life Insurance.

Term Life Insurance

Term life insurance offers protection for a fixed, pre-determined period of time, such as 10, 20, or 30 years. It can be ideal for those individuals who do not want to commit to a policy with “permanent” (aka whole life) coverage and where the premiums remain level over the term of the policy. However, because the premium is subject to change at each term renewal, the longer you keep the coverage, the higher the monthly or annual cost, plus, ultimately, since it’s non-permanent insurance, there’ll be an ultimate end date to it (usually at age 85) or with one insurance company, you will no longer be able to afford the renewals when you turn 70.

Common Term Life Insurance Classifications

  1. 10 Year Term Life Insurance
  2. 20 Year Term Life Insurance
  3. 30 Year Term or Term to 65 Life Insurance
  4. 40-Year Term Life Insurance

Permanent Life Insurance

Permanent life insurance protects individuals from any age, and it has no pre-determined time limit. Premiums can vary from year to year based on your medical profile, which is why you need a company that offers guaranteed renewal so your premiums do not go up. In contrast to term insurance, when you pay a level premium it is for your lifetime and the company guarantees to renew the policy every year with no change in cost.

With permanent life insurance, there are different types of plans that can be purchased:

1) Whole Life Insurance(also called Cash-Value or Universal Life) – a type of permanent life insurance policy that offers fixed payments for the insured person’s lifetime, as well as coverage for critical illness and fixed premiums.

2) Universal Life Insurance – a form of permanent life insurance where premiums remain level throughout your coverage term because it is designed with an adjustable premium rate. In this case, the death benefit typically varies with the amount of your annual premium.

3) Term to Age 100 – this type of permanent life insurance offers protection for a fixed, pre-determined period of time – age 100! It’s similar to whole life, which isn’t as flexible as universal life but there’s no cash values or equity build-up. You’re just paying for the life insurance benefit. The obvious drawback is that you can’t miss any premiums or you will risk losing coverage.

The Benefits of Life Insurance in Canada


The benefits of life insurance are vast. One of the most important is that it can provide for your loved ones when you’re gone, paying out a death benefit to help with funeral expenses or other major costs. It also provides peace of mind knowing that if something happens to you, your family won’t have to worry about how they’ll survive financially.

A whole industry has grown up around this need and there are many different types of policies available for Canadians who want to protect themselves against financial hardship in old age or worse-case scenarios like premature death.

Here are some of the benefits of buying life insurance in Canada:

Death Benefits Payout are Tax-Free

Life insurance death benefits are paid out to the named beneficiaries as a lump sum amount and are not subject to federal or provincial taxes because such an amount isn’t considered income for your beneficiaries.

Allows for Continued Financial Support

When we’re alive, well, and actively working, we provide the necessary financial support for our loved ones, especially our underaged kids. In the event, we pass away prematurely, with a young family, we will no longer be able to see them through, nor financially provide for them.

While life insurance can’t replace a person, emotionally, it can replace us financially, so our loved ones can maintain the same quality of life that we’re able to provide for them by providing funds for their cost of living expenses, mortgage, and car payments, and even pay for future education costs.

Can Supplement One's Retirement Savings

Purchasing life insurance doesn’t always have to be an expense, a well-planned life insurance policy also takes into consideration the possibility of living long. Participating whole life insurance and universal life insurance policies allow you to build cash equity aside from the death benefit, which you can cash out or leverage to supplement your other retirement funds.

How Do You Qualify for Life Insurance?


Life insurance is available to most Canadians but the contribution or premium costs can vary greatly based on the type of life insurance applied for as well as the risk level the applicant presents based on age, health, and lifestyle.

Canadians with pre-existing conditions may not be able to qualify for standard-rate life insurance.  Each insurer has its own standard and may offer coverage with a higher premium or decline the application based on the medical history (or lifestyle).

If you have a “high risk” lifestyle or have a medical condition, you may still qualify for coverage with companies like Canada Protection Plan that specializes in no medical life insurance coverages for clients that can get declined by regular insurance carriers.

To apply for life insurance, the first thing that you should do is to get in touch with a life insurance agent or a financial security advisor (like us).

We will then work with you in computing the financial obligations that you need to protect your loved ones against like how much income you want to leave, your mortgage obligations, and final expenses.

You will need to provide your personal information, like your date of birth, legal name, answer questions about your health and lifestyle, and provide the names of your policy’s beneficiaries.

In most instances, you will no longer have to undergo medical examinations for up to 1 million dollars of coverage, except when you have a pre-existing condition or if you’re over the age of 50, when urine and blood samples may be required.

The time frame for life insurance approval may take between a couple of days to 3 months. If you’re in good health and have a generally good lifestyle, your policy should come out in as little as a couple of weeks or a month. It only takes longer if an APS (attending physician statement) is required due to having a condition in the past or an existing health condition.

Factors that Affects Your Life Insurance Premiums

  • Age
  • Gender
  • Smoking
  • Health
  • Lifestyle
  • Family medical history
  • Driving record

Who Needs Life Insurance?

group of people

If you have financial obligations or people who depend on you for financial support, you need life insurance.

Most of the time, Canadians would only consider buying life insurance when they buy a house to protect their loved ones from losing the home in case they pass away during the term of the mortgage loan. As you’ve read above, life insurance can do so much more for your loved ones, like providing income when a breadwinner can no longer do so due to premature death.

If you are responsible for caring for children, paying off student or consumer debts, or supporting elderly parents, you need life insurance.

And did you know that single people need life insurance too?

Most single Canadians don’t plan on having life insurance until they realize that they need one at old age. Even if you’re not financially responsible for underaged kids, a spouse, or aging parents, there’s one financial obligation that we all have that only goes away when we pass away – it’s called final expense!

Should you pass away, who would be responsible for paying off the immediate cash needs that may arise as a result of your death?

Your siblings? Your parents? Cousins, Friends? How ’bout GoFundMe?

As a “financially responsible adult”, our own final expenses should be our own responsibility, as such, we shouldn’t burden anyone else by obliging them to pay for funeral and other expenses that may come up as a result of our own death.

Besides, there are types of life insurance that allow you to accumulate wealth from within the policy like participating whole life and universal life insurance. These types of policies can provide you with lifetime coverage and can be used to either supplement your retirement or as a primary source for retirement funds.

Talk with a Licensed Insurance Advisor


If you’re not sure if life insurance is right for you, consult with a financial security advisor to find out how much coverage you need and what type of policy would best suit your and your family’s needs.

Well-Planned insurance protection may come as a combination of permanent life and term life insurance. If budget is your concern, you can always start a term life insurance policy that covers all your financial obligations with a provision for policy conversion at a later time.

If on the other hand, you prefer an all permanent financial protection solution, Whole Life and Universal Life insurances are two options to consider.

Regardless of whatever types of life insurance should you decide to implement, the more important consideration is getting the proper amount of financial protection in place that suits your family’s needs.

Proper life insurance planning takes more than just a quick online term life insurance quote.

An expert life insurance professional can help you make a well-informed insurance planning decision. 

To get started, simply use the appointment-booking form below and we’ll try to accommodate the best date and time that works for you!

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