The price of life insurance in Canada

Life insurance transfers your financial risk of death to a life insurance company. In return for your premiums, the company promises a payout to your family to cover certain expenses and needs. In order for that arrangement to make financial sense to your insurer, it charges riskier customers higher premiums. Anything that makes you more likely to die increases your personal risk factor, which will increase the price of your premiums.

Age

Your age is the single most important factor in how expensive your life insurance premiums will be. Older people have a lower life expectancy than younger people, so are more likely to die over any term - some life insurance products are priced purely on age. Older people, no matter how good their health, will always pay more than a younger person, all else being equal.

Health

Your health is another major factor in the cost of life insurance, especially as you get older. If you are in poor health, or at an elevated risk of poor health, your premiums will be higher. Common risk factors include your smoking status, body weight, past medical conditions, and family history. When you’re young, most life insurance products will only require you to answer a health questionnaire before getting insured. These questions will include common risk factors, like whether you have a pre-existing illness, a history of critical conditions (eg heart attack or stroke), or a family history of an illness like diabetes. If you are older, or are classified as high risk on your questionnaire, you may be required to submit a letter from your doctor and/or sit a medical exam. Once your life insurance company has determined your risk rating, they will use that to determine your life insurance premium.

Smoking status

Of any health risk factor, Smoking is a particularly important one for your life insurance premium. Being a smoker will make a significant increase to your premiums, often causing them to double in price. Every life insurance policy asks your smoking status, so you won’t be able to escape it... unless you quit! 12 months without smoking will allow you to register as a non-smoker, assuming you stay that way. Vaping and smoking cannabis both generally count as smoking too, although this will depend on the insurer.

Gender

Gender plays a small but significant factor in determining your life insurance premiums. Women have a longer life expectancy than men, so present a lower level of risk to life insurance companies. As a result, life insurance premiums for women are 10-25% lower than those for men.

Occupation and hobbies

How you spend your time also impacts your life insurance premiums. People with dangerous occupations like drivers, roofers, manual labourers, miners etc, are more likely to die within a given term than people working in low risk jobs, like in an office or a school. As such, high risk workers will be charged a higher life insurance premium. This also applies to people who engage in high risk hobbies, like extreme sports.

Permanent policies, like whole life insurance and universal life insurance, are different beasts altogether. They are similar to term life insurance, but will cover you for your entire life. As a result, permanent insurance is far more expensive over the long term, as your policy is guaranteed to pay out at some point. However, because premiums are calculated long term, they are typically steady for life, so you’ll pay the same premium now as you will in 30 years. The trouble with permanent insurance is that there’s typically an investment component to it, either through cash accumulation or active investing, depending on the product. There are also tax benefits you can take advantage of. These, along with other complicating factors, make it virtually impossible to offer a generic quote example for permanent insurance. To properly compare the cost of permanent life insurance you’ll need to compare quotes and speak to an insurance broker or agent. There’s no risk in doing this, as you’re never obligated to buy a policy.

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