There are four primary attributes to a life insurance policy in Canada. I'm going to look at all four so that we can determine our yardstick for the 'best' — appreciating that there's going to be perhaps some opinion on this. However, knowing what the attributes are can help form your opinion. Further, the last attribute — price — encompasses all of them. We'll cover that one last but in most cases it'll be the most important one.
But first, the summary. You must make sure your term life insurance policy is convertible to permanent. Don't just trust a policy that says it's convertible, make sure that means its' convertible to permanent (all policies on this website are convertible to permanent). Then, in almost all cases, choose the least expensive. If you care about any of these attributes, then choose the least expensive policy with that attribute. Spoiler alert — none of these attributes are correlated to price. Often times the policy with the most attributes is the least expensive, and just as often the most expensive policies don't have them. So, start on price.
Lastly, just before we get into it in detail, this is a generalized evaluation. Specific considerations such as smoking or health concerns can make all of these considerations inconsequential and require specific companies or products.
1. Death benefit
Term life insurance policies have a death benefit amount — the coverage amount you chose when you applied for the life insurance. Term life insurance policies (excluding mortgage life insurance) have level death benefits; the coverage never goes up or down.
So from a comparison perspective, there is no difference in benefit amongst the various companies' policies. A million dollars of coverage from Company A pays the same as a million dollars from company B.
2. Policy features
Term policies do vary in terms of policy features. There are four common ones that we can evaluate and compare and they are:
Renewable
Term life insurance policies, by definition have premiums that are level for the duration of the 'term'. If your policy is a 20 year term, then your premiums are level for 20 years. If the policy is then also renewable, then that means at the end of the term, the policy actually stays in force. However, premiums increase.
Pre the mid 1990's, the premium increase at renewal was just to the same level as a new policy. If you bought a 20 year term policy at age 30, then at age 50 (when the policy renewed) the premiums were the same as a new policy for a 50 year old. It made sense to simply renew the policy. Back then people often purchased a 5 year term. They were inexpensive and every 5 years you got the same premiums as if you'd just purchased a new policy. Therefore, no need to buy a new policy, just keep on trucking with your current policy.
However, that changed and now the premiums at renewal (at the end of the term) are often 7-10 times what your initial premiums were. Premiums at renewal are borderline absurd, and we would not expect anyone to actually keep a policy at renewal. Therefore we recommend mostly ignoring the renewal feature on term policies and just making sure that you have a term that's long enough that at the end of the term you don't expect to need coverage for.
Convertible
Really, the final boss of policy features. Every Canadian consumer advocate I've ever seen talk about term life insurance mentions not just term — but specifies renewable and convertible. And it's the convertible feature that's important. When a policy is 'convertible' that means you can switch from term to permanent life insurance, guaranteed, with your health class locked in to the same level it was when you purchased the original term policy. That's what it means technically.
In practice what this means is that if you have a term policy and then later have a heart attack — so you're never getting a new policy again, or any policy — you can switch your term policy to permanent life insurance. No questions asked, healthy rates, guaranteed. Convertible is the single most important feature of most term policies.
The good news? Most term policies are convertible, and all of the ones on our website are convertible. You need to be careful though — some of the online or association/group type coverages are not convertible. i.e. if you're getting coverage through an association or as a member benefit at a retailer, or from an online insurance startup — these are often not convertible. Worse, some are now advertising their policies as convertible but they've changed their definition of convertible to mean something different. The way I've described convertible — convert term to permanent — is the industry standard definition of convertible and has been forever. So, be careful.
Exchange option
The exchange option lets you switch from one term policy to another, longer term, generally in the first 5-8 years. Mostly it's not a feature you would care about (you should get the correct term to start) but there's a few isolated cases where it can help to save premiums.
First, we have developed a unique discount called term stacking that uses this feature of some policies — in some cases we can construct an exchange that saves substantially in the first year of the policy, sometimes as much as 50%. It works better if you're older, and it doesn't always work, but we always check for it with all of our clients.
Secondly, if you have a temporary increase in premiums due to smoking but expecting to quit, or a temporary rating (i.e. height weight, and expect to reduce your weight) then we start with a shorter term with lower premiums then once you quit smoking or reduce your weight, then we exchange to the correct, longer term.
Read the full exchange option article →
Accelerated death benefits
Companies that have accelerated death benefits allow you to get a loan against your death benefit while you're still alive — as long as your mortality is pending. This isn't if you've developed cancer or had a heart attack. This is if you have a letter from your doctor saying 'yep, dead in less than a year, guaranteed'. In that case, this benefit allows you to take a loan (generally max 15-25% of the policy, to a max of $250K) against your death benefit then when you pass, the loan is paid from the final benefit amount.
It's my opinion that there's little actual value to this benefit for most of us so I don't emphasize it — but you know it exists and can evaluate the importance of it against your assumptions.
Read the full accelerated death benefit article →
3. The company
There are a number of company attributes that people care about. In my opinion, most of these are actually irrelevant, but once again, look at them individually and determine how much you care. Important — people very often confuse how much life insurance companies spend on advertising and awareness, with other factors. If you want a company that's BIG/OLD/LOTS OF CASH and I say Canada Life, Sun Life, and Foresters, and you chose one of those, 9 times out of 10 you're going to pick the wrong company. So, make sure you don't pick a company that just has good marketing (unless hey, you want a company that has good marketing).
Actually, let me compile a bunch of these in to one single attribute and then talk about the factors that feed into that attribute.
Company stability
People variously talk about size and age as proxies for stability. They want a big, old company. Except they don't actually evaluate those factors — they evaluate whether the company is spending money on marketing telling them that they're big and old. Further, company stability is a nebulous term. Every company in Canada is stable. Every company in Canada is stable — it's dictated by the government. Three or four times a year the government reviews the finances of every company in Canada and produces a number called the Licat Ratio. That number is used to judge whether the company is stable. If the company has an unacceptable licat ratio, the government takes steps to correct this. So, every company in Canada is pretty much assured to be stable by the government's ongoing monitoring.
Licat Ratio
The licat ratio that the government uses is very (very) roughly a ratio of say assets over liabilities. Spoiler alert, it's not really, I think an actuary would argue with me about that, but it's an easy simplification. So we want a high licat ratio. Well, if you're looking for stability, and are going to use this ratio as the metric, then you'll likely end up with companies you've never heard of. Foresters, Equitable, and a few others, all have company structures that don't require them to pay profits out to shareholders. Those companies then seem to retain more money internally, leading to a higher licat ratio. Stock companies — which are all the big brand names — have lower licat ratios because they have to pay money out to their shareholders.
To be clear — I don't personally think licat ratio matters. The government regulators say the current ratios are good enough, I don't have enough knowledge to disagree. But I am saying that if you're going to judge company stability, you should use a metric other than how much money they spend on advertising — and that'll be the licat ratio. And if you use the licat ratio, you likely won't end up at companies you were thinking of.
Company age
Again, people confuse this with marketing budget. Almost every life insurance company in Canada has its roots that go back over 100 years. And the one with the oldest roots? Again, probably a company you haven't heard of — Foresters Financial. Their roots as an association go back to the 1400's. Companies with newer names are often just mergers of older companies with roots going back 100 years. And the absolute newest companies on the market? Are the banks — they're really the biggest life insurance companies that have been around 10-20 years instead of 100+.
My point here is twofold. First, Canadians very often succumb to marketing and confuse how active a company is with their advertising, with 'stability' or ability to pay claims. Secondly, in practice, the government regulators already ensure that every single company in Canada is well able to pay their claims both now and in the future. If the government assessed a company and found them unable to pay their claims at some point in the future? They'd already be taking action to correct it.
So in my opinion, this entire area of comparison is not something I place much value in. However if you are going to evaluate these attributes, then you'll likely end up choosing Foresters Financial — they're big, they've got lots of assets, one of the best if not the highest licat ration, and their roots go back 500 years and they're international but headquartered in Canada — Toronto to be exact. But their marketing department must have a different agenda because most Canadians have never heard of them.
Customer service
Most life insurance companies have mediocre service. They have call centers staffed with people new to the industry who took the job just so they could get started in the company and plan to move to another job internally as soon as they can. Not much different than the banks I expect. Rule driven, bound by guidelines, and no deviation allowed. There are however a few companies that in my experience have terrible service — if you stumble across one I might mention it. And there is one company in my experience that has outstanding customer service (Wawanesa Life).
That being said, your broker really should be your first and in most cases only point of contact for customer service so you should be mostly insulated from poor customer service. (And I don't want to sound like a broken record, but if you choose not to go with a broker for your life insurance polices, then know that you'll be dealing with a call center for your service, including at time of a death claim).
4. Price
Price — the final frontier, but actually should be your FIRST consideration. Recall my very first point — death benefits are indistinguishable amongst policies. And by starting with price, that allows us to actually evaluate properly all of the above attributes. Here's how.
Run a term life insurance quote on our website. Evaluate all of the above attributes, see which ones you care about. Then start at the least expensive company on the quote — does it have the additional attributes that you care about? If not, what about the second cheapest. Find the least expensive company that does have all the features you care about.
And NOW we can evaluate this properly. Because you have the least expensive policy, and the difference in cost for whatever attributes you've defined. Look at the difference in costs — that's what it costs you to have those things you want. Say you want customer service. The cheapest company is $100/month. The company with the service you want is $110. Are you prepared to pay $10/month for the term, for customer service? It's now an easy yes or no question, and we've placed a dollar amount on your choice. This is a far better evaluation method than just saying 'I'll get Canada Life because it's a big old company' when you have not determined exactly what big and old mean, or exactly how much that will cost.
In summary
We want to make sure any term policy we purchase is convertible to permanent. Once that bar is met, we mostly care about price. If we come off the least expensive policy, then make sure you know exactly what attribute it is that you're paying extra for, and make sure you know exactly how much you're paying for that attribute.
Ready to compare policies? Get term life quotes from 17 Canadian insurers — premiums AND policy benefits, side by side.