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Life insurance vs. health insurance in Canada

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There are many ways to increase the chances of living a long and healthy life. You can focus on nutrition and exercise, get plenty of sleep and avoid dangerous situations, but no matter how careful we are, sometimes people get sick or injured, and eventually, every life comes to an end.

Insurance is something many people purchase to protect themselves and their families from unexpected financial burdens. 

You might crash your car and need to have it repaired or replaced – so you purchase car insuranceThere could be a fire or flood that damages your home – so you purchase home insuranceDepending on your profession, you could make a mistake at work that accidentally harms another person – so you purchase liability insurance

But what happens if you get sick? What happens when you die? That’s where life insurance and health insurance come into play.

Key takeaways on life insurance vs. health insurance

1. Life insurance and health insurance have a few similarities – they are both agreements with you and your insurer which provide financial coverage for unexpected expenses.

2. Life insurance is there to protect your loved ones after your passing. It can help them cover all different types of needs, such as income replacement and funeral expenses. 

3. Health insurance is there to cover expenses related to illness or injury. While Canada runs on a universal health care system, there are still many gaps in coverage in which health insurance will come in handy (e.g. dental care, prescription drugs). 

What is the difference between life and health insurance?

There are similarities between life and health insurance:

  • Both protect people from unexpected expenses related to an illness or death.
  • Both are contracts between an individual (or policyholder) and an insurance provider in which the insurance provider agrees to pay a certain sum of money to a certain person or group of people, and the policyholder agrees to pay for the security of this arrangement in the form of predetermined premiums. 

However, life and health insurance protect different groups of people from different situations. To put it simply, health insurance covers expenses related to keeping you alive and healthy, while life insurance covers expenses related to your death.

What is life insurance in Canada?

Life insurance protects your loved ones from the financial costs associated with your death. In a life insurance policy or contract, the insurance company agrees to pay a certain amount (usually determined when the policy is set) to your beneficiaries after you die, in exchange for a set amount of premiums. 

What does life insurance cover in Canada? 

Setting aside the intense emotional loss, the people closest to a deceased person need to plan, organize, and pay for the funeral, cremation or burial, plus all the other expenses related to the death and aftercare. On top of that, there’s a good chance the deceased person was earning an income that their family depended on. Depending on the policy, all of these expenses can be covered by life insurance. 

There are different types of life insurance policies in Canada, and the protection they offer varies – these types of policies include:

  • Term life insurance - This type of insurance offers coverage for a specific term – usually between 10 and 30 years. If a person dies within the set term, their beneficiaries will receive a payout from the insurance company. 
  • Whole life insurance - This type of insurance offers coverage for a person’s whole life, as long as the premiums are paid on time. This means no matter how long the policyholder lives, their beneficiaries will receive the insurance payout upon the policyholder’s death. These policies also accumulate a cash value over time. 
  • Universal life insurance - Like whole life insurance, universal life insurance offers coverage for the remainder of the policyholder’s life and accumulates a cash value over time. The premiums paid into this policy are divided into two portions: the death benefit and the policy’s cash value. 

Every person has different needs when it comes to a life insurance policy, and each policy carries a different amount of coverage. It’s important to speak with a life insurance professional that has been specially trained and educated and can walk you through the options available and help determine which is best for your situation. 

Who should get life insurance?

According to the Life Insurance Marketing and Research Association (LIMRA), 12.6 million Canadian households own life insurance policies. 

If you have a spouse or family that depends on you for their financial stability, you should get life insurance. Even if your spouse or family would be financially stable without you, life insurance is still helpful to ensure that nobody else ends up responsible for the costs associated with your death including your funeral, cremation, burial, or paying off your debts.

Compare life insurance quotes from Canada's top providers.

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What is health insurance in Canada?

Health insurance ensures that a person has financial coverage in the event of an illness or injury. In a health insurance contract or policy, the insurer agrees to cover some or all of the costs associated with getting medical care in exchange for a set amount of premiums.

What does health insurance cover in Canada?

Canada is a country with publicly-funded, universal health care that provides protection for Canadian citizens and permanent residents. The federal government oversees this program and transfers money to each province to fund its own individual healthcare systems. 

This means that medical essentials like visits with a doctor, trips to the emergency room, and emergency care like the birth of a child, stitches, broken bone resets, acute mental health crises and surgeries are covered by the health care system and do not require the patient to pay for their care out-of-pocket. 

However, since each province governs its own healthcare system, the specific rules around what and how much is covered can be different depending on where you live. 

Also, Canada’s universal healthcare system does not cover every type of medical requirement. Items and services not covered by Canadian publicly-funded healthcare include:

  • Prescriptions (unless provided during a surgery or hospital visit)
  • Dental care
  • Vision care
  • Ambulance fees
  • Long-term care
  • Out-of-country medical expenses
  • Counselling
  • Paramedical services like chiropractic treatment, physiotherapy, massage therapy and more

Many Canadians have private medical coverage to cover the cost of these additional services. This private medical coverage may be covered by your employer, or it may be purchased individually. 

Who should get health insurance?

Accidents and illnesses can happen regardless of a person’s age or health and well-being. This is why it’s important for everyone to have health insurance. In Canada, we are lucky that basic, emergency health care for citizens and permanent residents is covered by a universal health care system, but supplementary health insurance is still necessary – after all, even if you don’t need any prescriptions, dental care, or eyeglasses today, you never know what tomorrow may bring. 

It’s also very important for Canadians to ensure they have out-of-province and out-of-country health insurance coverage before they take a trip (also known as travel insurance). 

There are limitations to what the universal system covers if you’re outside of your home province, and if you get sick or injured while travelling outside of Canada, the Canadian system won’t be helpful to you at all. 

The bottom line

Life insurance ensures your beneficiary is financially cared for in the event of your death, and health insurance ensures your medical needs are covered if you ever get sick or injured. 

These are both important policies to have because they help ensure that you and your loved ones are financially protected in case anything happens to you. 

There is a wide range of options to choose from when determining which life and/or health insurance policy is most appropriate for your unique situation, so before you make any decisions, it’s important you speak with a licensed professional who knows the ins and outs of each type of policy. 

Also read

How much life insurance do I need in Canada?

The top benefits of life insurance for Canadians

How much is health insurance in Canada?