Life Insurance In Canada: Who Can You Insure?

Life insurance is a financial safety net for your loved ones in the event of your death. It's a legal contract between the insurance company and the policyholder, who pays premiums to ensure their beneficiary receives a death benefit or cash payout. In Canada, you can take out life insurance on someone else, but only if two conditions are met: you have the insured person's consent, and you can prove that you will suffer a financial or emotional loss if they die. This insurable interest is most common in family relationships but also applies to business partnerships. The process of buying life insurance for someone else is similar to purchasing it for yourself, except you need the other person's written consent and must prove your insurable interest.

Consent and insurable interest are required

In Canada, you can take out life insurance on someone else, but only if certain conditions are met. The two main requirements are that you have the consent of the insured person and that you can prove you have an insurable interest in them.

Consent

The insured person must give their permission for you to take out life insurance on them. They will need to sign the life insurance application form and provide written consent. The insured person will also need to give the insurer permission to collect their data, such as their medical history, and they may need to undergo a medical examination. Without the consent and participation of the insured, it is almost impossible to buy a life insurance policy on them.

Insurable Interest

In addition to consent, you must be able to demonstrate that you have an insurable interest in the insured person. This means that you will suffer a financial or emotional loss if they die. Insurable interest is most common in family relationships, such as between spouses, parents, and children. However, it can also exist in other relationships, such as business partnerships.

When applying for life insurance on someone else, you will need to prove your insurable interest. For family relationships, this may simply involve proving your relationship status. For business partnerships, you may need to submit a business contract or other documents showing that you or the company will be financially impacted by the insured person's death.

Whole life insurance

Some whole life insurance policies include a savings component called the cash value, which the policyholder can access during their lifetime. This cash value can be used for anything, such as unexpected expenses or supplementing income. It can grow over time on a tax-preferred basis, meaning the policyholder won't have to pay tax on any cash value growth. Policyholders can borrow against the cash value by taking a loan or making a partial withdrawal from the policy. However, unpaid loans will reduce the cash value or the final death benefit, and there may be additional tax implications.

To purchase whole life insurance for someone else in Canada, the insured's consent and proof of insurable interest are required. Insurable interest exists when the policyholder can prove financial dependence on the insured.

Term life insurance

Flexible Coverage Period

Affordable Premiums

Tax-Free Death Benefit

In the unfortunate event of your death during the policy term, your beneficiaries will receive a tax-free lump-sum payment, known as the death benefit. They can use this money for any purpose, such as replacing lost income, covering funeral expenses, or paying off debts. The death benefit provides financial stability for your loved ones when they need it most.

Convertible Coverage

Customizable Add-ons

Instant Temporary Coverage

Some term life insurance providers offer instant temporary coverage while they review your application. This temporary coverage can last up to 90 days and provides peace of mind while you wait for the final approval of your policy.

30-Day Review Period

Permanent life insurance

Most permanent life insurance premiums don't increase from the time the policy is purchased. The policyholder can also choose their beneficiaries, who will receive the death benefit upon the policyholder's death.

There are three types of permanent life insurance plans: whole life insurance, universal life insurance, and participating life insurance. Whole life insurance provides coverage for the policyholder's entire life, with premiums that don't change as they get older. Universal life insurance combines life insurance with an investment account, allowing the policyholder to build wealth for their beneficiaries. Participating life insurance offers guaranteed money growth inside the policy and policyowner dividends.

Joint first-to-die term insurance

• Single Application and Premium: Joint first-to-die insurance requires only one application for both people and has a single premium payment, making it convenient for budgeting.
• Payout upon First Death: The policy pays out the entire death benefit when the first insured person dies, providing immediate financial support to the surviving partner.
• Use of Death Benefit: The death benefit can be used to pay off debts, such as mortgages, cover funeral expenses, or provide for dependents.
• Conversion Option: Some joint first-to-die policies allow the surviving partner to convert the plan into a permanent policy without a medical exam, although the premium will be higher due to the increase in age.
• Affordability: Joint first-to-die insurance is typically more affordable than two separate policies, making it a good option for couples who cannot afford individual policies or want to keep costs low.
• Health Considerations: If one partner has health issues, a joint policy can help secure coverage, as both partners do not need to qualify for preferred rates individually.
• Divorce or Separation: In the event of a divorce or separation, the joint policy can be complicated to split, and not all insurance carriers offer this option. It may be necessary to let the policy lapse or for one partner to take over the policy.
• Flexibility: Joint first-to-die insurance may offer less flexibility compared to individual policies, as it provides only one payout and may not be easily split in case of separation.
• Beneficiary Designation: The beneficiary of the policy can be someone other than the surviving partner, such as children, relatives, or a charity, providing flexibility in tailoring the policy to specific wishes and needs.
• Business Partnership: Joint first-to-die insurance can be beneficial for business partners, ensuring funds are available to buy out the deceased partner's share or keep the business running smoothly.

Frequently asked questions