Life insurance in Canada, is it better than in the States?
Most people have life insurance of one form or another as a standard fact of life, an expense that has to be paid to cover financial costs at the time of death, and to make sure any outstanding loans or mortgages are paid off, thus not leaving the bereaved with over burdening costs.
With this in mind, let’s look at some differences between life insurance in the States, and the same in Canada. Here are some common questions:
I live in States and have a Canadian friend; he pays significantly less life insurance in Canada than me – why?
Statistics show that people living in Canada have a life expectancy of at least two years more than their American counter-parts. This means that insurance companies can look to gain an extra two years’ worth of premium payments before having to pay a death benefit. Hence the premiums are lower.
I live in States; can I get life insurance in Canada?
In most cases the answer is “no”. Canadian life insurance companies normally restrict their policies to Canadian residents only. Even if you have been working and living in Canada for a prolonged period of time, unless you become a landed immigrant and intend on residing in Canada permanently.
I have moved to Canada, when can I get life insurance in Canada?
In most cases you are only eligible for Canadian life insurance once you have obtained Canadian residential status. If you have permanently moved to Canada and have applied for Canadian residence, you can apply for Canadian insurance as soon as you have written proof that your application for residence is being processed.
So what other differences are there between American life insurance and Canadian?
One of the biggest differences in the two systems is regarding taxes paid at time of death, or when withdrawing money from a policy.
Canadian Insurance premiums are normally paid after taxes, meaning your salary is taxed, then from the remaining amount you pay for life insurance. This has the advantage that when the final amount is paid on the event of your death your next of kin are not liable for taxes on the amount, whereas in America your next of kin may be liable to pay inheritance tax on the amount paid out (Whether this tax is applicable, and to who it is applied to varies from state to state. You are best advised to seek the assistance of an insurance consultant if you are unsure whether inheritance tax is applicable to you and your family).
Some permanent life insurance policies allow you to loan or withdraw amounts from a life insurance policy (in the case of loans you can either repay the amount loaned back into the policy, or allow it to be deducted from the final policy payment). In Canada this means that the amount you receive is not eligible for tax up to the adjusted cost base. This leads some Canadians to use permanent life insurance policies as a form of investment. (In America you would be charged tax as the amount you withdrew would be seen as income).
My friend also said there are differences in “term” life insurance in Canada – what are those?
Canada does have a unique type of term** life insurance available to its residents; it is called “term 100”. This allows the policy holder and insurance company to agree on a set premium over the course of the policy, meaning that as the policy holder ages the amount of premium required does not increase.
(**Term Life Insurance: This is a form of insurance that is used solely to provide a payment in the event of the death of the policy holder. These forms of life insurance are usually used to guarantee complete repayment of financial commitments the policy holder had during their life, or when a person decides to undertake life insurance at a late stage in their life where permanent life insurance is not available.)
I have moved back to the States, do I invalidate my life insurance policy?
As long as you maintain your Canadian residence your insurance company will maintain your insurance policy, along with most benefits. (Expert advice should be sought, when considering policy withdrawals and loans against a policy as these may be may be deemed as income if you are in the States).
In conclusion, there are quite a few differences between life insurance in Canada and the states (and other places). Most Canadians and reviewers consider the Canadian life insurance to be cheaper and more beneficial than the equivalent in States.