I interact with people each week who are surprised to learn that they are spending more money on coverages. These are the coverages which they do not actually need. Most of them feel stuck, they know that insurance is important but it is expensive. Some wonder if they’re throwing money away.
The main issue I have observed is not the fact that insurance is expensive most of the time. It is that people aren’t sure what they are paying for.
The permanence of the coverage is not be useful to you when your need to be protected for the next 20 years. You might be adding privileges you will never use. You might not realize that protection can cost less than a coffee a day.
This matters because most Canadians are already stretched financially. About half of Canadians say other expenses come first—utilities, rent, childcare. If your insurance bill is making that harder, you deserve to know whether you’re actually getting value.
In this article, I’ll show you how to tell if your policy costs more than it protects. Then you can make a real choice—not based on guilt or fear, but on facts.
What Does It Mean When a Policy Costs More Than It Protects?
This is simpler than it sounds. A policy costs more than it protects when you’re paying for something you don’t need or won’t use.
Example 1: Whole Life When Term Would Work
Maria, a 35 year old parent of two, is paying $320 a month for whole life insurance. She has a mortgage, two kids in school, and wants to make sure her family is secure. That’s smart thinking.
But here is the thing. She could buy the same $500,000 death benefit with a 20 year term policy for about $21 a month. Both policies would protect her kids while they’re young and financially dependent. By the time the term ends, her kids would be grown to adults. Her mortgage would be smaller, and she wouldn’t need the same level of protection.
The difference? She’s paying almost $300 more per month than necessary.
Example 2: Paying for Riders You Won’t Use
A rider is an add-on to your policy—like critical illness insurance or accidental death benefit. These cost extra. If you have a rider you’re unlikely to ever use, that’s money that could go toward something else.
Example 3: Holding Coverage You No Longer Need
Many individuals continue to pay for life insurance after their children have reached adulthood and their mortgage has been paid off, and they have enough savings. If you’re financially secure and have no dependents, paying for death benefit coverage might not make sense anymore.
Why Are Canadians Overpaying?
The numbers tell a clear story. According to the Canadian Life and Health Insurance Association, about 31% of Canadians have a coverage gap—meaning they have either no insurance or less than they need. But at the same time, many others might be overpaying for what they do have.
Here are the most common reasons I see:
Misunderstanding the Cost Difference
Over one-third of Canadians think life insurance costs three times more than it actually does. If you think a solid term policy will cost $100 a month, you might not even look into it. The reality? A healthy 35-year-old can often get $500,000 in coverage for about $20-30 a month.
Choosing the Wrong Type of Policy
Term and whole life insurance serve different purposes. Term is temporary. Whole life is permanent and costs 5 to 15 times more. Many people buy whole life because someone sold it to them, not because it matches their actual needs.
A whole life policy makes sense if you’re wealthy and planning your estate. It makes sense if someone will depend on you financially forever—a child with special needs, for example. But for most Canadian families? Term insurance does the job at a fraction of the cost.
Adding Benefits Without Thinking It Through
Riders sound helpful. Critical illness rider. Accidental death rider. Child term rider. Each one adds a little to your monthly cost. But if you’re never going to use them, each one is money you’re throwing away.
I’ve seen people pay an extra $15-20 a month for riders they didn’t understand and didn’t need.
Not Reviewing Your Coverage Over Time
Life changes. You get married, have kids, pay off your mortgage and get older. Your insurance needs shift with these changes, but by just keep paying the same premium for the same coverage, does not make sense.
If you have not looked at your policy in the last 5-10 years, there is a good chance it is not right for where you are now.
Understanding Protection-Focused vs. Savings-Based Policies
This is important, so let me break it down clearly.
Term Life Insurance (Protection-Focused)
We all agree that a term policy covers for a set amount of time which is usually 10, 20, or 30 years. You pay a premium monthly or annually. If you die during that term while policy is active, your beneficiary gets the death benefit. If you do not die before the term ends, the coverage is gone.
This is straightforward. You are buying pure protection. There is no cash value, no savings component, no complexity.
A 35 year old man might pay about $30 a month for a 20 year term with $500,000 in coverage. Over 20 years, he is paid about $7,200 total. If he dies during that term, his beneficiary gets $500,000. If he does not, the coverage ends but by then, his mortgage is quite smaller or paid off, his kids are grown, so the requirements have changed what it was 20 years ago.
Whole Life & Permanent Insurance (Savings-Focused)
A whole life policy covers you for your entire life. The premiums stay the same forever. Part of your premium goes toward the death benefit. The other part goes into a cash value account that grows over time—tax-deferred.
That same 35-year-old man might pay about $314 a month for whole life coverage with the same $500,000 death benefit. Over 20 years, he would pay $75,360. Over 30 years, he’d pay $112,980.
The advantage? The cash value keeps growing. After 10 years, he might have $50,000 in cash value he can borrow against. After 20 years, maybe $100,000. The coverage lasts his whole life.
The cost? Whole life is roughly 10 to 15 times more expensive than term.
Which Costs More Than It Protects?
For most young and middle aged Canadians with families, whole life costs more than it protects. You are paying for lifetime coverage you probably do not need right now. You are also paying for a savings component that might grow more slowly than other investment options like an RRSP or TFSA.
Does that mean whole life is not a good option. No. Whole life might make sense if you are wealthy and want to leave a tax efficient inheritance. Or if you have a child with lifelong care needs.
How Life Stages Affect What You Actually Need
This is where a lot of people get confused. Your insurance needs are not the same throughout your life.
Early Career, Single or New Couple
If you do not have dependents, you might not need life insurance at all. If someone depends on your income e.g. a spouse, kids, aging parents then you need coverage to replace that income.
What is a reasonable amount which insurance companies consider? 2 to 5 times your annual income or enough to cover major debts.
Young Family With Kids and a Mortgage
This is when most people need the most coverage. You have a mortgage. You have kids who will need money for education, food, and stability. One parent’s death would create a real financial crisis.
A 25 year or 30 year term policy makes sense here. You are covered while your kids are growing up and your mortgage is active. Once they are independent and the debt is paid, you can let the coverage end.
Mid-Career, Mortgage Getting Smaller
By your 50s, your mortgage might be half-paid or nearly gone. Your kids are in their 20s or beyond. Your insurance need is lower. You might drop down to a smaller term policy or let it end when it comes due.
Some people switch to a smaller whole life policy at this stage if they have estate planning goals.
Pre-Retirement and Retirement
If you have built up savings, paid off your mortgage and have no dependents, you might not need life insurance anymore. Your savings, if planned well can replace what insurance used to provide.
Some retirees keep a small policy to cover funeral costs and leave something behind. Others let coverage lapse entirely.
The Real Cost of Not Reviewing Your Policy
Here is what happens when you do not check in. You keep paying for coverage that does not fit your life anymore.
The average Canadian household has $509,000 in coverage. That is up 5% from the year before. Why? Rising home prices mean bigger mortgages. Childcare costs more. Everything costs more. And to cover this cost, people buy more insurance.
But here is the thing. Just because you have a policy does not mean it is the right amount or the right type.
If you bought your policy ten years ago as a young parent, it might still be designed for a young parent’s needs. But you are not young anymore. Maybe your kids do not live with you. Maybe you own your home outright now.
Spending 15 minutes reviewing your coverage every few years could save you hundreds or thousands of dollars without sacrificing protection.
A Simple Self-Check: Does Your Policy Cost More Than It Protects?
Ask yourself these questions:
- Do I know what type of policy I have? (Term or permanent?)
If you do not know, it is time to find out. Check your policy documents or call your insurance provider.
- Am I still paying for riders I do not understand or won’t use?
Go through each rider. Do you know what it covers? Would you actually use it? If not, removing it could lower your monthly cost.
- How long do I actually need this coverage?
Think about your family situation, debts, and financial goals. When would you no longer need a death benefit?
- Am I paying more than I thought insurance would cost?
If your monthly premium seems high, get a quote for a term policy. You might be surprised at the difference.
- Have I reviewed this policy in the last three years?
If not, now is the time.
Key Takeaways
Insurance should give you peace of mind without creating financial stress. Here is what matters:
- Most Canadians are better served by affordable term insurance than expensive permanent policies. Term covers you during the years you need protection most.
- Many people overestimate how much insurance costs. Basic coverage can be surprisingly affordable.
- Not all riders add real value. Before adding one, make sure you’d actually use it.
- Your insurance needs change over time. A policy that was perfect for you at 30 might cost more than it protects at 50.
- Taking 30 minutes to review your coverage every few years could save you significant money while keeping your family protected.
The goal isn’t to have the most insurance or the cheapest insurance. The goal is to have the right amount of protection at a price that fits your budget.
FAQ: Common Questions About Insurance Costs
Q: How much should I expect to pay for life insurance?
A: For a healthy 35-year-old buying a 20-year term policy with $500,000 in coverage, expect $20-30 a month. For whole life with the same coverage, expect $250-350 a month. The cost depends on your age, health, and whether you smoke.
Q: Is whole life insurance ever worth it?
A: Yes, but only for specific situations. If you’re wealthy and want to leave a tax-efficient inheritance, or if someone will depend on you financially forever, whole life can make sense. For most people, term insurance offers better value.
Q: What happens if I let my term policy expire?
A: Your coverage ends. If you die after the policy expires, your beneficiaries receive nothing. Some people let coverage expire because they no longer need it. Others buy a new policy or convert to permanent coverage if they still need protection.
Q: Can I lower my monthly premium by reducing my coverage amount?
A: Yes. Less coverage means lower premiums. However, make sure the lower amount still covers your actual needs. Use a calculator to estimate how much you really need based on your debts and financial obligations.
Q: Should I remove riders to lower my cost?
A: Only if you understand what the rider does and don’t need it. A critical illness rider adds cost but provides real protection if you’re diagnosed with a serious illness. A child term rider adds cost but covers your kids. Remove only the ones that truly don’t apply to your situation.
Q: How often should I review my insurance?
A: At least once every three years, or whenever your life changes significantly—marriage, kids, job change, mortgage payoff, inheritance, or major illness.
Final Thoughts
The insurance firms paid more than $143 billion worth of benefits to Canadians in 2024. Life insurance paid out $18.6 billion to families and beneficiaries. It is actual money, delivered to actual people at the time they require it most. However, these advantages do not benefit you in case you pay more to be covered than you actually require. They do not assist in the case that you cannot afford to pay the premiums, to begin with.
You ought to trust your insurance, not be ashamed, not be confused and not be bankrupt because of it. You deserve to know what you are paying for and why you are paying.
Read your policy document. Find a quote to compare. Discuss what you feel comfortable with. Ask questions to the point of understanding the answers. When something does not feel right, it probably isn’t.
Insurance is one of such decisions that minor alterations may result in significant financial consequences. A thirty minute activity will prevent you from losing a hundred dollars a year without depriving your family of protection. That’s worth your time.
Be curios. Stay informed. Also, the best policy is one that actually fits your life.