A family doesn’t need a single packaged life insurance product. It needs coverage for each death that would create a financial gap, for the amount and time that gap would last. To prepare this guide, our editorial team reviewed the Financial Consumer Agency of Canada’s life-insurance guide, FSRA’s explanation of life-insurance policy types, FSRA’s life-insurance buying guidance, and FCAC’s insurance-shopping guide.
Keep reading to learn how to decide who needs coverage, calculate the gap, compare term and permanent options, choose ownership and beneficiaries, and avoid replacing useful coverage for the wrong reason.
What Is the Best Life Insurance Plan for a Family?
There is no best life insurance for everybody. Often, several term policies may make sense: one to pay off a mortgage, another to replace income, and another to pay for temporary childcare.
Permanent insurance may make sense when you have permanent needs like final expenses, estate taxes or a dependent that may require lifelong support. Permanent insurance also makes sense when your family can reliably afford it.
But always start with potential financial loss. Age, illness, or elevated risk does not, by itself, create a need for coverage.
How to Check Whether Your Family Has a Coverage Gap
Underinsurance happens when a family doesn’t leave behind enough to meet their chosen financial obligations and goals.
You might be tempted to use your province’s average life insurance needs or some other recommended amount. Before you do, find out who recommends that amount and how it’s calculated. Otherwise, calculate how much coverage your household would need by doing the following:
- Add up all of the income that your survivors would need, and for how long.
- Add all of your debts and other one-time financial obligations that you’d like settled.
- Add the cost of childcare, education, other support, final expenses, help replacing household work, and long-term care for dependants.
- Add the tax/estate liquidity need if a qualified professional has advised that this is a need.
- Subtract assets that are available right away, as well as any existing, reliable coverage. This will tell you how much coverage your household is lacking.
This is not necessarily the amount of coverage you should get. Use this amount as a starting point and make sure the associated premium fits into your budget. Have someone qualified, like your agent or broker, review your calculations and assumptions.
Read More: Read Why Life Insurance Can Be Important
What Are My Family’s Life Insurance Options in Canada?
| Option | Useful fit | Limitation to check |
|---|---|---|
| Individual term | Temporary income, mortgage, childcare or debt need | Cost of renewal may be higher. Coverage will end after the term. Check for differences in provisions and time frames for converting. |
| Whole life | Lifetime death-benefit needs with premiums and guarantees set by the contract. | Cash value and dividends are distinct; dividends are not guaranteed; premiums are higher. |
| Universal life | Lifetime needs when the policyholder understands the flexible funding and investment options. | The policy should be reviewed on an ongoing basis as values may be impacted by investment returns, charges, and funding levels. |
| Term to 100 | Coverage through age 100, generally without the cash-value component found in many whole-life contracts. | Though other features may vary, terms around premiums and policy lapse are still important. |
| Joint first-to-die | Amount payable after the first death. Typically used to meet a shared need. | Note that there is less flexibility after separation and the survivor may need new coverage. |
| Joint last-to-die | Estate liquidity expected after both insured people die | NOTE: no money is paid on the first death; income from first death would not be replaced. |
| Creditor or mortgage life | Paying some or all of an insured debt under the creditor policy | In many of these policies, the lender is the beneficiary; benefits and portability may differ from individually owned term life insurance. |
| Child rider | Death benefit will be paid on an eligible child’s life under their parent’s policy. This benefit will be limited. | Age limit; amount; conversion; contractual end date |
| Employer or association group life | Low-cost base coverage while eligible | Amount may be limited and coverage may end with employment or membership |
Such benefits are contingent upon the policy remaining in force and the claim meeting the conditions of the policy.
Read More: Compare Term and Whole Life Insurance
Is Family Life Insurance a Separate Product?
Family life insurance is not a specific type of life insurance policy available in Canada. Instead, it’s a planning label for a variety of individual, joint, group insurance and optional rider policies a household may have in place.
Who in the Family Needs Coverage?
| Person | Possible financial loss after death | Coverage question |
|---|---|---|
| Income earner | Lost take-home income, benefits and pension contributions | How much income will be required, and until when? |
| Stay-at-home caregiver | Childcare; transportation; meal preparation; housework | What jobs/services would the survivor have to pay someone else for? |
| Both parents or partners | Two distinct financial losses that may require different coverage amounts or terms. | Would separate policies be more flexible than joint coverage? |
| Child | For example, final-expense cover, time off work, counselling, etc. | Would the rider be worth it to you or would you put that money into parent coverage? |
| Dependant needing lifelong support | Planning for care, housing, and estate funding beyond the lives of the parents. | Which trust, benefit and estate rules need legal or financial advice? |
| Business-owning parent | Other liquidity needs: buy-sell, debt, key-person, and tax-related needs. | Should the business carry insurance specifically designed for particular business purposes? |
Read More: Estimate Your Family’s Life Insurance Needs
Choose the Owner and Beneficiaries
| Role | What it means | Decision to document |
|---|---|---|
| Policy owner | The policy owner controls the policy, subject to the contract terms and any irrevocable beneficiary’s rights. | Who is/are entitled to pay for the policy, make changes to the policy and receive the values from the policy? |
| Insured person | The insured person is the person whose life is covered. | Should the amount adequately compensate for this person’s death? |
| Primary beneficiary | Receives the death benefit if eligible when the insured dies | Is the person, share and revocable or irrevocable status correct? |
| Contingent beneficiary | Is eligible to receive a benefit when the primary beneficiary is unable to receive it. | Does the policy explicitly name a backup beneficiary or did you unintentionally name your estate? |
| Trustee or administrator for a minor | Responsible for holding and controlling funds for a minor in accordance with the plan’s provisions. | Have the provinces’ powers and documents been confirmed by a lawyer? |
In Quebec, if you designate your married or civil-union spouse as beneficiary, the designation is presumed to be irrevocable unless otherwise indicated.
FCAC also mentions the possibility of setting up a trust when the beneficiary is a minor. Without a trustee or administrator, the province or territory may keep the benefit until the beneficiary reaches the age of majority.
Legal advice is recommended in preparing designation and trust documents.
Read More: See How Contingent Life Insurance Beneficiaries Work
Should You Make a Family Life Insurance Plan?
Do not cancel an existing policy until the new one has been received and goes into effect. Be aware that a new policy may restart periods related to contestability and suicide. Underwriting may yield a different result. Advantages and provisions of an older policy may not be available again.
When more than one person in a household requires coverage because the death of any of them would cause a financial shortfall, a household insurance plan makes sense. It need not be with a single insurer. Consider not only overall cost, but flexibility, guarantees, conversion privileges and the quality of service.
Read More: Read the Life Insurance Guide for New and Expecting Parents