Life Insurance 101: The Policy You Hope Never Pays Out
Life insurance is one of those adult chores that sits in the corner like an unopened box from Ikea. You know it matters. You keep meaning to deal with it. Then life gets busy, your calendar eats your brain, and suddenly you’re five years older with the same plan: “I’ll get to it later.”
Meanwhile, a lot of Canadians are still rolling without any coverage at all. Which is a bold strategy when you have a family, a mortgage, or anyone relying on your income.
So let’s make this simple, practical, and non-weird. It’s a long read, but a good one.
What life insurance actually is
Life insurance pays a tax-free lump sum (generally) to the people you name if you die. That lump sum is called the death benefit and the people you name are the beneficiaries.
That money can be used to:
Keep the mortgage paid
Replace lost income
Cover childcare
Pay off debt
Handle funeral and final expenses
Give your family breathing room instead of panic
Life insurance is not about being dramatic. It’s about preventing financial damage at the worst possible moment.
The three main types of life insurance (in human language)
1) Term life insurance
Term life insurance covers you for a set number of years, commonly 10, 20, or 30.
If you die during the term, your beneficiary gets the benefit.
If you outlive the term, the policy ends. No payout.
Example: You buy $1,000,000 of 20-year term.
You die in year 17: payout = $1,000,000
You live past year 20: policy ends, payout = $0
Types of term insurance (quick breakdown)
Level term: Premium and benefit stay the same.
Yearly renewable term: Renews annually and gets more expensive as you age.
Decreasing term: Premium is fixed, but the benefit declines over time.
Term is typically the most affordable way to buy a larger amount of coverage, especially when you’re younger and healthier.
What happens when the term ends?
Usually you can:
Renew (higher cost, because you’re older)
Convert to permanent life insurance (often without new medical proof, depending on the policy)
Cancel if you no longer need it
2) Whole life insurance (permanent)
Whole life generally covers you for your entire life and includes a cash value component.
Part of what you pay goes toward the insurance, and part builds cash value that grows over time, typically tax-deferred.
Some whole life policies may also pay dividends (depending on the product and insurer). Those can be used to:
Reduce premiums
Buy additional coverage
Be taken as cash (varies)
Boost the long-term value of the policy
Whole life costs more than term because it’s doing more than term.
Can you borrow against it?
Often, yes. You can borrow against cash value. If you don’t repay, the loan and interest typically reduce the eventual payout.
3) Universal life insurance (flexible permanent)
Universal life combines permanent coverage with a savings or investment component and more flexibility.
Depending on the policy, you can often:
Contribute above the minimum premium
Invest within the policy options
Use growth to help cover premiums and policy costs
Withdraw funds or borrow against the cash value (rules apply)
Universal life can work well when it’s properly funded and reviewed. It’s not a “set it and forget it” product.
The “Work Coverage Is Enough” Myth
If you have life insurance through your employer, great. Take it. Keep it. It’s often inexpensive and sometimes guaranteed issue up to a certain amount.
Now the myth part:
Work life insurance usually lasts exactly as long as your job does.
If you:
change jobs
get laid off
retire
reduce hours
switch from employee to contractor
…your coverage can shrink or disappear. Sometimes you can convert it to an individual policy without medical proof, but the premiums can jump.
What employer life insurance usually looks like
A flat amount (example: $10,000), or
A multiple of salary (example: 2x salary)
That might be helpful, but for most families it’s not “job done” coverage if you’ve got a mortgage, kids, or debt.
The simple move that works
Keep the workplace coverage if it’s there.
Use an individual policy to cover the stuff that doesn’t care where you work: mortgage, income replacement, debt, and the years your family needs you most.
Reality Check: Term vs Permanent
This is where people get stuck because they want the “perfect” answer. There isn’t one universal answer. There is a right answer for your situation.
Here’s the clean version.
Term is for a season
Term tends to fit best when your financial responsibilities have a clear end date:
Mortgage years
Kids at home years
Debt payoff years
“If my income stops, we’re in trouble” years
Term is often the best cost-to-coverage option for protecting those years.
Permanent is for lifetime needs (and lifetime goals)
Permanent life insurance is built for needs that don’t end:
Estate planning
Leaving a legacy
Funding final taxes or expenses in a structured way
Supporting a dependent with lifelong needs
Long-term strategies involving cash value (for the right person, funded the right way)
The decision framework I like
If the need has an end date → term tends to win.
If the need is permanent → permanent starts making sense.
And yes, many people use both:
Term for the big responsibilities now
A smaller permanent policy for legacy or lifetime needs
Evidence of insurability: why the insurer asks personal questions
Sometimes you can buy coverage with minimal medical information. Sometimes the insurer wants proof you’re insurable, especially if:
the death benefit is large
there are medical history concerns
you have high-risk travel patterns
you have high-risk hobbies
there are other underwriting flags
This can include medical records or a paramedical exam (blood pressure, bloodwork, etc.). Underwriting is basically the insurer doing a risk assessment before they agree to the deal.
Beneficiaries: the part that’s boring until it’s very important
Naming your beneficiary is one of the most important steps.
Do this properly:
Name a primary beneficiary
Name a contingent beneficiary (backup)
If naming multiple people, assign percentages
Provide accurate identifying info so they can be located easily
If you’ve had major life changes (marriage, divorce, kids), it’s smart to review your beneficiary designations. Policies don’t auto-update just because life did.
Limitations and exclusions: the fine print that actually matters
Policies can contain exclusions or limitations such as:
War or acts of war
Aviation exclusions (typically private aircraft, not commercial flights)
Dangerous activities depending on the policy
Many policies also have a suicide exclusion period early on. Always read your contract and ask questions if anything looks vague.
Riders: useful add-ons that people forget exist
Common riders include:
Accidental death benefits (sometimes called double indemnity)
Child or dependent coverage
Waiver of premium for disability (so you don’t lose coverage if you can’t work)
Riders can be where the policy becomes more “you” and less generic.
How much life insurance do you need?
This is the big one. There’s no magic number, but there is a process that gets you to the right ballpark quickly.
Step 1: Who relies on you financially?
Partner/spouse
Children (and how long until independence)
Any other dependents
Step 2: What needs to be paid off?
Mortgage
Loans
Lines of credit
Credit cards
Business debts (if applicable)
Step 3: What income needs replacing?
How much income would your family lose?
For how many years?
Step 4: Add the real-world costs
Funeral and final expenses
Final bills
Any planned legacy or support needs
Step 5: Remember inflation
A number that sounds huge today can feel a lot smaller 15 years from now. Planning should age well.
If you want a quick starting point, we can do a simple “needs analysis” and then refine it based on your goals and budget.
Quick note on AD&D (Accidental Death and Dismemberment)
AD&D only pays for covered accidents. It is not the same as life insurance.
It can be a nice bonus if it’s included through work. But it doesn’t replace life insurance for most families because it usually won’t pay if death is from illness or natural causes.
If your employer offers AD&D for free, take it. If you’re buying it separately, make sure you understand what it covers and what it excludes.
Bottom line
Life insurance is not about expecting the worst. It’s about making sure your family doesn’t get hit with a financial mess on top of everything else.
If you want help figuring out:
term vs permanent
how much coverage makes sense
whether your work policy is enough
how beneficiaries should be structured
…we can make it simple and fit it to your actual life, not a generic checklist.