Top 8 biggest myths about life insurance debunked for 2025

With files from Jessica Ho

This article was published on February 13, 2024 and was updated on July 8, 2025.

For many Canadians, life insurance may seem like a daunting topic, but it’s important to understand the ins and outs of your coverage so that you can make the best decisions for your loved ones’ financial future. In this article, we break down and debunk the most common life insurance misconceptions. Plus, we share our mid-year predictions for the future of life insurance.

Debunking eight common life insurance misconceptions

Here are a few misconceptions you may have about life insurance, along with the realities that debunk them. For more insight on any one of these topics, be sure to connect with a licensed broker in Canada.

1. Life insurance is too expensive

While life insurance can be expensive, that’s not always the case. Term life policies are generally affordable, especially if you lock in your premium while you’re young and healthy. For instance, a 30-year-old, non-smoking female can pay as little as $225 each year for a $500,000 20-year term policy – that’s about $20.25 to set your loved ones up for a potential worst-case scenario. 

Also read: How much does life insurance cost in Canada?

2. You don’t need life insurance if you’re young, single, and healthy

Life insurance isn’t for everyone, but it is the cheapest while you’re young and healthy. Locking in a premium early on can be a cost-effective measure for future family planning, especially knowing that your health status can change at any given moment. 

Even if you aren’t planning to start a family (or have any dependents for that matter), you can consider life insurance for other reasons. For example, if you have co-signed debts with your parents (e.g. for a mortgage or student loans), life insurance can help cover these obligations in the event of your passing. Alternatively, you may even want to take out a policy with a smaller benefit, just so all your funeral expenses are covered. 

3. Children don’t need life insurance

Life insurance for children can be considered unnecessary as kids don’t have incomes to replace or dependents to support. However, adding a child term rider (CTR) to your own life insurance policy is a smart financial strategy. In the event of a worst-case scenario, such as your child developing an illness or passing away, having coverage means you’d have financial security to cover medical bills, unpaid time off work, funeral costs, and other expenses.

You can also convert the CTR to a permanent policy when the child reaches the required age (typically 18). This guarantees coverage without having to complete a questionnaire or medical exam, which can be beneficial if your child has a pre-existing medical condition.

It also serves as another financial option to set your kids up, in addition to opening a Registered Education Savings Plan (RESP). If your children were to forgo post-secondary education, you’d be taxed on withdrawals not used for school. A life policy offers additional security without tying your savings into an education fund.

4. Your employer-provided life insurance is sufficient 

Employer-provided life insurance (also known as group life insurance) typically offers a basic level of coverage – it may be a set amount or tied to a percentage of your salary – which won't account for your specific needs. So while the policy can be a nice-to-have for final expenses, it may not be enough if you have children to provide for or a mortgage that can be passed on. Make sure you calculate how much life insurance you need and supplement your employer's coverage accordingly if needed. 

There is also a lack of customization when it comes to employer-provided life insurance. Most group plans are term life policies, so if you want permanent life insurance – or additional add-ons on your policy, such as a child rider – you may need to seek out individual coverage. Last but not least, know that these policies are generally tied to your employment status. If you leave your job, you may lose your coverage. 

For this reason, we recommend purchasing your own policy while you’re young, which can be switched into a long-term plan. Purchasing a small policy early on will help keep your premiums from increasing too drastically as you age and fill any coverage gaps if you change jobs and lose your group benefits.

5. You can’t get life insurance with a pre-existing condition

While it’s true that having a pre-existing condition can make it difficult to obtain coverage, it’s not impossible to do so. Many companies offer policies, specifically designed for those with pre-existing conditions. This can include guaranteed-issue life insurance, where no medical questions or exams will be needed for approval. 

6. Joint life insurance is the best option for couples

There are a few different types of joint life insurance policies. If you and your partner are both looking for coverage at the same time, a joint multi-life plan can provide two separate death benefits under one insurer for a discounted rate.

However, that’s not the case with joint-first-to-die and joint-last-to-die plans. With joint-first-to-die insurance, a single death benefit is paid when one policyholder passes away. With joint-last-to-die insurance, on the other hand, a single death benefit is paid when both policyholders pass away, meaning that when the first person dies, the surviving policyholder must continue paying the premiums. 

These policies are typically more affordable than purchasing two separate plans, so they can be a great option for certain couples. For example, if you and your spouse share similar financial responsibilities, a joint-first-to-die life insurance policy can be a practical solution to replace income after one person passes away.

Also read: Life insurance for young married couples

However, just because you and your partner both need coverage doesn’t mean you should automatically opt for a joint-first-to-die or a joint-last-to-die plan, as your coverage needs may differ. Plus, if one partner has a complicated health history, it can lead to a higher premium overall. The same goes for mortality rate; typically, men face higher premiums as they have shorter life expectancy. With a joint life insurance policy, providers will calculate rates based on the higher risk. 

In the case of a joint-first-to-die policy, the surviving partner may want to purchase their own coverage later on. However, it can be challenging to find affordable coverage after a certain age. 

Also read: Life insurance for seniors in Canada

Lastly, separations happen, and deciding what to do with the policy can be complicated, as your options are limited. You’ll need to decide whether to keep the joint policy or cancel it altogether.

7. Investing is a better financial strategy than buying life insurance

Investing in the stock market or registered savings accounts is a popular financial strategy for Canadians looking to build wealth. Many people choose to invest early in life to save for retirement, without considering the benefits of a life insurance policy as a form of financial protection. 

While investments can help grow your financial status, they don’t account for what-if scenarios that could limit your ability to enjoy that wealth. For example, if you were to develop a serious illness, living benefits products, such as critical illness insurance, could help cover the associated costs without draining your savings.

8. Life insurance can only be used after death

While the primary use for a life insurance policy is to secure your loved ones’ financial futures after your death, there are a few ways you can access benefits during your lifetime. Permanent life insurance policies, for one, accumulate a cash value reserve – this is money you can access through withdrawals or loans. This can be helpful in the event of a financial emergency (e.g. paying for medical bills or home repairs), or you may simply want the cash value there to supplement your retirement income.

You can also access cash value if you need to surrender your permanent policy for any reason – this amount (called the cash surrender value) is generally a lump sum amount that includes a portion of the accumulated cash value, minus any fees or outstanding policy loans. While this will leave your beneficiaries without any death benefit, it can provide you with immediate access to a large portion of funds during your lifetime. 

Additionally, living benefits products, such as critical illness insurance and disability insurance can offer funds during your lifetime in the event of a health-related emergency. It can be used for various needs, such as replacing lost income and covering medical bills. 

Ratehub.ca’s mid-year life insurance predictions for 2025

Now that we’ve debunked some common misconceptions about life insurance in Canada, let’s take a look at some of our mid-year predictions.

1. AI will transform life insurance underwriting

We predict that AI’s involvement in the insurance industry will speed up the process of purchasing policies in Canada. This will look like fast-tracked underwriting decisions and streamlined policy approvals, allowing Canadians to get approved on the spot. In addition, we expect that AI will enhance fraud detection and risk assessment by analyzing databases such as those from the Medical Insurance Bureau (MIB) and quickly alerting to application misrepresentations or errors. 

However, AI is still relatively new to the insurance industry and raises concerns about risk and privacy. It is too early to fully predict the impact it will have on the industry. 

2. Canadians will purchase more policies to fill financial coverage gaps

Economic instability in Canada has left many Canadians feeling fearful about job loss, debt and financial insecurity. As money stress becomes more real, we predict more people will take action to protect themselves and their finances by securing life insurance. 

Recent data shows life insurance sales are trending in this direction. According to LIMRA, new annualized premiums increased by 13% year-over-year in the first quarter of 2025, and the number of policies sold rose by 2%. 

As LIMRA’s Associate Research Director noted, “In times of economic uncertainty, investors often turn to permanent life insurance products for steady, guaranteed returns and principal protection. Should this uncertainty persist, we expect sales of permanent products to do well throughout 2025."

Similar to during the COVID-19 pandemic, we predict that Canadians will likely prepare for rising costs and worst-case scenarios, which will result in more life insurance products being sold throughout the rest of the year.

3. Yet, most Canadians will continue to be underinsured

However, even as more Canadians purchase life insurance, we predict that most will remain underinsured because of perceived cost barriers. According to a 2024 report from LIMRA, nearly one-third of Canadians are living with a life insurance gap, with 53% saying they haven’t purchased the coverage they know they need because they believe it’s too expensive. 

We predict this trend of underinsurance will continue to grow throughout 2025, as most individuals choose their coverage limits based on the price of premiums. This is especially true for younger generations. A LIMRA study reveals 48% of millennials and 39% of Gen Z adults say their reason for not owning (more) life insurance is the perceived cost. 

It’s essential to remember, however, that some coverage is better than none, and even a small policy can provide financial protection when needed.

The bottom line

Life insurance may seem like a daunting topic, but it doesn’t need to be. By doing your research ahead of time and staying up to date with industry trends, you can make sure you’re making the best decisions for your financial future.  

You can even compare quotes online before speaking with a broker. In less than five minutes, you’ll see rates from Canada’s top providers to find the right coverage at the best price. 

Also read

• Can you take out life insurance on anyone?
• Do you need life insurance under 35?
• The top benefits of life insurance for Canadians