Insurance is one of the few financial products where the correct amount to buy is often much more of one thing and none at all of several others.
The governing principle: insure catastrophic risks, self-insure trivial ones. For life insurance, term suits the large majority of situations — it is cheap because it covers the years you have dependants and debt, and expires when you no longer do. Disability insurance is the most underrated coverage for working-age Canadians, because becoming disabled for 90+ days before 65 is considerably more likely than dying. Skip mortgage life insurance, extended warranties and flight insurance.
Insurance is a transfer, not an investment. You pay a premium to move a risk you cannot absorb onto a company that can. Because the insurer must cover claims, costs and profit, the average buyer loses money on the average policy by design. That is not a scandal — it is what you are paying for, and it means insurance is only worth buying where the loss would be genuinely unmanageable.
Which produces a clean two-by-two test:
Reading the grid: rare events with a manageable cost should simply be absorbed — insuring a $300 phone screen means paying an insurer a margin to handle a bill you can pay. Common, expensive events like replacing a roof are not really insurable risks at all; they are predictable costs that need a sinking fund. The only box that genuinely justifies a premium is rare and catastrophic, where the loss would be financially unrecoverable.
First, the question that comes before the product: do you need life insurance at all? Life insurance replaces income or repays debt for people who depend on you. A single person with no dependants and no co-signed debt generally does not need it. A single-income parent with a mortgage and two young children needs a substantial amount.
| Term life | Permanent (whole / universal) | |
|---|---|---|
| Covers | A fixed period — 10, 20 or 30 years | Your whole life |
| Cost | Low — often a few hundred dollars a year for substantial coverage in your thirties | Several times higher for the same death benefit |
| Cash value | None | Builds a cash value you can borrow against |
| Best for | The large majority of situations | Narrow, specific cases |
Term insurance is cheap because it is temporary, and temporary is usually what you actually need. The years when your death would be financially catastrophic for others are the years with young children and a large mortgage. By the time the term expires, the children are independent, the mortgage is paid, and the portfolio built over those decades has replaced the need for coverage. The goal is to become self-insured.
"Buy term and invest the difference" is the standard advice and it holds up — with one honest condition. The comparison only works if you actually invest the difference. Someone who buys the cheap term policy and spends the savings has done worse than someone who bought permanent insurance, because permanent insurance is a forced savings plan wrapped in an expensive product. That is a real behavioural advantage, and it is also the reason permanent policies are sold so heavily — the commissions are far larger.
Where permanent insurance genuinely fits:
If you do not recognise yourself in that list, term is almost certainly the right answer.
Here is the fact that reorders most people's priorities: for a working-age Canadian, becoming disabled for 90 days or more before age 65 is considerably more likely than dying before 65. Yet disability coverage is bought far less often than life insurance, and usually only through an employer.
It is also, in a specific sense, the worse outcome financially. Death removes an income and removes a person's expenses. Long-term disability removes the income while adding expenses — care, equipment, home modification — potentially for decades.
Your most valuable asset at 30 is not your portfolio. It is the several million dollars of future earnings your working life represents. Disability insurance is what protects that asset, and almost nobody thinks of it that way.
"Own occupation" pays if you cannot perform your own job. "Any occupation" pays only if you cannot perform any job you are reasonably suited to. A surgeon who loses fine motor control is disabled under the first definition and possibly not under the second. Own-occupation coverage costs more and is worth it for specialised, well-paid work.
Also check: the elimination period (how long before benefits start — typically 90 to 120 days, which is what your emergency fund is bridging), whether benefits are indexed to inflation, the benefit period (to 65 is standard; anything shorter leaves a large gap), and whether the policy is non-cancellable.
And check the tax treatment: if you pay the premiums with after-tax money, benefits are generally tax-free. If your employer pays them, benefits are generally taxable — which means a group plan replacing "70% of income" may really be replacing about 45% after tax.
Group coverage through work is a good starting point and usually has real gaps: it often uses the "any occupation" definition after two years, is capped at a maximum monthly benefit, may not be indexed, and — most importantly — disappears when you leave the job, which may be the same event that caused the problem. If your income is substantial or specialised, an individual policy alongside the group plan is worth pricing.
Mortgage life insurance from your lender. This is the clearest bad-value product in Canadian retail finance, for three separate reasons:
A term life policy for the same amount typically costs similar or less, pays a level benefit, names beneficiaries you choose, is underwritten upfront, and stays with you if you switch lenders.
Extended warranties. Common, low-severity, and priced with a large margin. Self-insure. Many credit cards extend manufacturer warranties for free.
Flight and rental-car insurance sold at the counter. Rare, low-severity, frequently duplicating coverage you already hold through a credit card or existing policy. Check what you already have before buying at the till.
Critical illness insurance is a genuine middle case rather than an outright skip. It pays a lump sum on diagnosis of a covered condition. It can be valuable for a self-employed person with no sick leave, or to fund treatment or time off. But the covered-condition definitions are narrow and precise, and it should never be bought instead of disability coverage — disability insurance covers far more of the ways a working life actually gets interrupted.
Usually not. Life insurance replaces income or repays debt for people who depend on you financially. If nobody relies on your income and you have no co-signed debt, there is generally nothing to insure. The exceptions are a partner who could not carry a shared mortgage alone, a co-signed loan, a business partnership, or a large expected estate tax bill.
Generally no. The benefit declines as your mortgage balance falls while the premium stays level, the lender is the beneficiary rather than your family, and the insurer reviews your medical history properly only when a claim is made — so a discrepancy can result in denial at the worst moment. A term life policy for the same coverage usually costs similar or less, pays a level benefit to beneficiaries you choose, is underwritten upfront, and follows you if you change lenders.
Term is right for the large majority of people. It is cheap precisely because it covers the years when your death would be financially catastrophic for others — young children, a large mortgage — and expires once your own savings have replaced the need. Permanent insurance makes sense in narrow cases: providing estate liquidity for a large tax bill at death, supporting a permanently dependent family member, or specific corporate planning for business owners.
Educational purposes only — not financial, investment or tax advice. RiskStock is not a registered dealer, adviser, or tax professional. Nothing in this course is a recommendation to buy or sell any security or product. Tax and benefit figures are for the 2026 tax year, were verified against official sources on 2026-07-27, and change annually — confirm your own numbers with the CRA and a qualified professional before acting.