Fact CheckedSTOP right now… if you’re starting your life insurance search, you’re in the right place.
Most people don’t know the ins and outs of life insurance, and why would they? Unless you work in the industry or you’ve bought a policy before, it can feel like everyone is speaking a different language.
So I’m going to peel back the layers and break it down clearly, no jargon, no assumptions, and no fluff.
Because you’ve probably read too many articles that make you feel behind before you’ve even started.
Not here.
Life insurance basics can feel overwhelming, especially when you’re trying to understand how life insurance in Canada actually works and which options apply to your situation.
Life Insurance Basics 101: The Jargon
I think this is one of the areas where life insurance agents get a bad rap, and honestly, it’s not always undeserved.
We use a lot of terminology, and too many advisors don’t take the time to explain what they’re talking about in plain English. Over time, people in the industry get comfortable with buzzwords and forget that most clients aren’t immersed in life insurance every day.
That’s a problem.
No self-respecting Life Insurance Basics 101 guide would be complete without defining some of the standard vocabulary you’ll run into when applying for a policy. So let’s slow things down and clear the air.
Here are the key terms you need to know.
1. Policyholder
The policyholder is the owner of the life insurance policy. In most cases, the policyholder and the insured are the same person. However, it’s also possible to take out a policy on someone else’s life, such as a spouse or business partner.
2. Beneficiary
The beneficiary is the person or entity who receives the payout upon the insured’s death. This can be an individual, multiple people, or even a charity. You can usually name more than one beneficiary and specify how the benefit is divided.
Learning how life insurance works in Canada helps clarify why policies are structured the way they are.
3. Death Benefit (or Face Amount)
The death benefit, also called the face amount, is the amount paid when the insured passes away.
For example, if you have a $500,000 life insurance policy and you die while the coverage is active, the insurance company pays your beneficiaries $500,000.
Simple as that.
4. Premium
The premium is the cost of your life insurance. It’s the amount you pay to keep the policy in force and can usually be paid monthly, quarterly, or annually.
5. Underwriting
Underwriting is the process insurance companies use to determine your risk level and ultimately, your price.
During underwriting, insurers typically look at factors such as:
Your age
Your gender
Your health history
Your lifestyle (smoking, hobbies, occupation, etc.)
All of this information is used to assign you a rating class, which directly affects how much you pay.
All of this said, it would be unwise to eliminate all bullshit (or what may seem like bullshit) from organizations. Professionals sometimes need highly technical terms to get their job done. For instance, it would be impossible for a doctor to perform surgery without resorting to some medical jargon.
What Is Life Insurance and Who Needs It Anyway?
“I Think Life Insurance Is a Scam”
I knew someone would say it.
Every single time I write a Life Insurance Basics 101 article, someone inevitably leads with:
“I think life insurance is a scam.”
Fair enough. Let’s talk facts.
Before choosing a policy, it’s essential to understand what life insurance is and how it’s designed to protect your loved ones financially.
1. Life Insurance Is Nothing New, Not Even Close
Life insurance isn’t some modern invention dreamed up by insurance companies. You can trace its roots back nearly 6,000 years.
In ancient Babylon, merchants used a system called bottomry. A shipowner would take out a loan to fund a trading voyage, using the ship as collateral. If the ship was lost at sea, the loan didn’t need to be repaid. If the journey was successful, the lender was repaid with interest.
Sound familiar? That’s risk-sharing in its earliest form.
In ancient Rome, burial associations collected monthly dues from members to pay funeral costs when someone died. That concept eventually evolved into what we now call final expense insurance.
And here’s a fun aside: Lloyd’s of London started as a 17th-century coffeehouse where merchants, bankers, and underwriters gathered to insure shipping voyages. Long before Starbucks, this was the place to manage risk.
If life insurance were a scam, it wouldn’t have survived or evolved for thousands of years.
The first modern life insurance company, The Amicable Society for a Perpetual Assurance Office, was founded in 1706 under a charter from Queen Anne.
Canada’s first insurance company opened in 1804.
Fast-forward to today: billions of dollars in life insurance benefits are paid to Canadian families every year.
That doesn’t happen in a “scam” industry.
2. The Real Problem Isn’t Fraud, It’s Underinsurance
Here’s the uncomfortable truth.
About one-third of Canadian families have no life insurance.
Ouch.
And while the remaining two-thirds technically have coverage, only about 15% say they have enough insurance to cover their remaining mortgage if they were to die.
Even more telling? Only 25% of Canadians feel financially prepared for their death.
That’s not because life insurance doesn’t work.
It’s because many people misunderstand or underestimate what their family actually needs.
3. Debt Makes the Risk Even Worse
Canadian household debt continues to climb.
For every dollar of income, Canadians carry roughly $1.71 in debt, including mortgages, credit cards, lines of credit, and loans.
While most people want to become debt-free, far fewer consistently reduce their debt. And more than a third of Canadians say they feel overwhelmed by debt.
Now imagine losing a primary breadwinner in that environment.
Debt doesn’t disappear when someone dies. It attaches to the estate and gets paid before loved ones receive anything.
That’s when families spiral, not because they planned poorly, but because they didn’t plan at all.
4. Life Has Terrible Timing
This is the part people don’t like to think about, but it matters.
You can do everything “right” and still get blindsided.
You leave your house one morning, step onto the sidewalk, and a tragic accident ends your life instantly. No warning. No goodbye.
What happens next?
Who pays the mortgage?
Who covers funeral costs?
Who services the debt?
Who replaces your income?
Without planning, families are often forced to sell homes, drain savings, or dramatically downgrade their lifestyle during the worst moment of their lives.
That’s why life insurance exists.
Not because we expect tragedy but because planning is how we protect the people we love when the unexpected happens.
Life insurance keeps promises when we’re no longer around to do it ourselves.
“Okay… But Isn’t This a Bit Dramatic?”
Sure, you could say, “What are the chances?”
Or you could acknowledge the truth: none of us knows what tomorrow holds.
Life Insurance Basics 101 isn’t about fear.
It’s about responsibility.
Understanding that is the first step toward making good decisions.
It's Morbid To Think Of The Worst Case Scenario, Your Spouse Being Gone, Nobody Wants That But You Really Have To Put Things Into Perspective And Say, This Can Actually Happen.
Unless you’re one of those rare birds who are independently wealthy, you probably need life insurance.
And even if you do have an estate, life insurance works exceptionally well as a tool to offset taxes for your beneficiaries. It’s one of those quietly powerful strategies that people often overlook.
The best news? Term life insurance is wayyyy more affordable than most people expect.
No one wants to talk about life insurance because it forces us to talk about death. We’re all just mere mortals floating around on this little sphere in space (sorry, had to get a bit trippy there) for a very brief period of time…
…and for some, that stay is shorter than planned.
Life insurance isn’t sexy. But it is a necessary evil when it comes to protecting the people you love. In fact, it might be the only product you ever buy that you genuinely hope you never have to use.
So, with that out of the way…
Let’s get on with Life Insurance 101.
Life Insurance Basics 101: Where Do I Start?
OK, I know I need life insurance. Now what? Take a long, hard look at your circumstances.
…and no, I don’t mean estimate. Get a pen and paper and figure out how much money your family or loved ones need if you were to die suddenly.
You’d be surprised how many people are not in a relationship with this!
Step 1: Let’s Break It Down! How Much Coverage Do You Need?
- What are your outgoings? Rent/ mortgage, utilities, insurance, groceries, entertainment, subscriptions, clothing, etc, get the idea?
- Do you have a mortgage? Would paying off that obligation relieve financial stress on the people you leave behind?
- What about debt? Do you have outstanding loans, lines of credit, or other debts that must be paid off?
- Did you make promises? Maybe you want to help put your kids or grandchildren through university, or you’re in a business partnership that relies on your input.
- Where do you see yourself in 10, 15, 20, or 30 years? There are chances you’ll be better off—or at least that’s the plan!
Ca-ching!
I bet you’re in shock now that you know how much you need to keep this show on the road. It knocks a lot of my clients for a loop.
…and it’s one of the main reasons I’m writing this Life Insurance Basics 101 post!
The Cost of Living Is Crazy!
The Canadian to U.S. dollar exchange rate is costing travellers a pretty penny to cross the border.
Man, that’s a lot of work. I don’t know if I have the time. Why don’t I pick a figure?
Because you want to make sure your family is protected! Read on…
Let’s say you buy a policy with $200K of coverage! It sounds like a lot of money to most people.
But when you pay off some debts, take care of the funeral, and continue with your family’s daily machinations…
…it’s not a lot of money at all.
It could leave you underinsured. That’s why it’s important to speak with an independent agent who can give you a starting point.
I conduct a comprehensive needs analysis with all my clients. This process involves using a formula to produce an accurate amount of protection. If you’re in a pinch, 7 to 15 times your gross income is an excellent place to start.
A proper needs analysis helps determine how much life insurance you actually need, based on income replacement, debts, dependents, and long-term goals.
Remember, there’s a gap between the protection people THINK they need and what they need. Trust me, you don’t want to be caught in a bind when something terrible happens, and insufficient coverage is in place.
OUCH! This Life Insurance Basics 101 post is an eye-opener! I feel confident I need $500K of coverage, but I’m not 100% sure how long I’ll need it!
Step #2: Choose Your Term
Let’s say you’re in your late 20s and decided to buy a life insurance policy while young and healthy. First of all, kudos to you! I’m impressed that you’re taking care of business.
This is a financially savvy decision.
Why?
Because if you’re starting a family, you can get a 30-year term policy for the cost of your daily coffee! This coverage carries you through your childbearing years into your children’s adulthood.
Wow! Now, that’s a fantastic deal. You’re covered no matter what happens to your health.
Don’t get me wrong; a 30-year term isn’t for everyone. If you want to cover some short-term debt or business expenses, a 10- or 20-year term might be more suitable.
The key is to be honest about your needs and meet with an independent life insurance agent to ensure you get the right policy! Call Policy Architects today! 1.888.501.9583
Step #3: Select the Type of Life Insurance YOU Need
There are two main categories of life insurance. Term life insurance and permanent life insurance. Whole life falls under the permanent insurance umbrella.
Now, while whole life can be a great product, it isn’t the right fit for everyone.
In my experience, many people don’t actually benefit from cash-value or permanent insurance. I typically recommend these products to people with estates, business interests, or surplus income who need a place to allocate money after exhausting more traditional options.
I also don’t consider life insurance a traditional investment. If your primary goal is growth, there are usually better places to put your money.
That’s why working with an independent life insurance agent matters. You need someone who can walk through all your options, not just push one product. The goal is to match the type of insurance to your actual situation.
Let’s break down the two main types in plain English.
Term Life Insurance
Term life insurance is the most affordable and most commonly purchased type of life insurance, and it’s the right choice for the vast majority of people.
It’s also the purest form of protection.
With term insurance, you buy coverage for a specific period of time, known as a term. Standard terms are 10, 20, 25, or 30 years. If the insured dies during the term, the beneficiary receives the full death benefit… tax-free.
Coverage amounts typically range from: $50,000, $100,000, $250,000, $500,000, $1,000,000
…and can be customized based on your needs.
Term insurance is so affordable because you’re only paying for protection during a defined period. Think of it like renting instead of buying; you’re covering years of vulnerability, not a lifetime.
Another bonus? Term insurance is cheaper than it was decades ago, in many cases, significantly cheaper, and it’s more accessible to older applicants than ever before.
Permanent Life Insurance
Permanent life insurance is designed to last your entire lifetime, as long as premiums are paid.
Because of that, it’s considerably more expensive than term insurance.
Permanent policies typically have two components:
An insurance component
A savings or cash-value component
Over time, the policy can accumulate cash value, which may be accessed or borrowed against, depending on the structure of the policy.
For the right person, permanent insurance can be a powerful tool — particularly for estate planning, tax strategies, business succession, or guaranteeing funds for final expenses.
Many people use smaller permanent policies specifically to cover funeral and burial costs, ensuring their family isn’t left with that burden.
The three main types of permanent life insurance are:
Whole Life
Universal Life
Term 100
Each works differently and suits different goals, which is why choosing correctly matters.
NOTE: Term 100, Also Known As “Term-To-100” Is Misleading Because It Has The Word “Term” In The Title But It's Most Definitely Permanent Insurance. Confused? You're Not Alone.
Step #4: the Application Process
Not all life insurance companies are created equal.
Some are more lenient than others when it comes to specific medical conditions, lifestyle factors, or personal history. This is where experience matters — your agent should understand these differences and know which insurers are the best fit before you apply.
That knowledge can translate into real savings.
Once you’ve identified the right company, the next step is the application.
Applications can usually be completed:
In person
Over the phone
Via screen sharing on a computer
Some people prefer a more personal, hands-on approach. Others just want to move quickly and efficiently. Either way, the process can be tailored to your comfort level.
Electronic applications have become the industry standard, making things faster and easier than ever. In many cases, you can apply without leaving your home.
One last, and very important, point:
Honesty is always the best policy.
Withholding information or “rounding the truth” almost always backfires. Medical records speak for themselves, and discrepancies can lead to delays, higher premiums, or even a decline later on.
The smoother and more transparent the application, the better the outcome.
NOTE: Misrepresenting Anything On The Application Or Fudging The Truth Is Fraud And Your Beneficiaries Won’t Get A Dime. In Other Words, Failing To Declare Something Is A Sure Fire Way To Have Your Claim Denied If The Insurance Company Catches Wind Of It. It Sounds Crazy But There Doesn't Have To Be A Relationship Between What You Omitted And The Cause Of Death. For Example, If You Fail To Disclose That You're An Avid Scuba Diver And You Die Of A Terminal Illness, Expect To Have Your Claim Denied. By The Way, All Communication Between You And Your Life Insurance Agent Is Confidential.
Step 5: The Medical Exam
Life insurance is a business. Before setting your premium, companies want to understand the risk they’re taking on — which means learning as much as they reasonably can about you.
That’s where the medical exam comes in.
Yes, no-medical and simplified-issue life insurance exists. You can apply online, answer a series of questions over the phone, and in many cases have a policy issued in under 48 hours. The insurer reviews prescription histories, medical records, and motor vehicle reports to assess risk.
Fast? Absolutely.
But there’s a trade-off.
You typically pay more money for less coverage because the insurer is assuming greater uncertainty. For most people, a fully underwritten policy with a medical exam results in better pricing and higher coverage limits.
If you’re eligible, I strongly recommend going the fully underwritten route.
Understanding how life insurance rates are determined explains why two people the same age can receive very different quotes.
What to Expect During the Medical Exam
Ah yes… the medical exam.
Everyone’s favourite part of the process.
The good news? It’s straightforward, and it’s done at a time and place that’s convenient for you, often in your home.
A nurse will typically:
Check your vitals
Measure your height and weight
Draw a small blood sample
Ask a few health questions
Collect a urine sample
That’s usually it. Occasionally, additional tests are requested, but most exams are quick and painless.
It really is as simple as 1, 2, 3.
How to Get the Best Possible Result
It’s completely normal to feel a bit anxious, but there are things you can do to help ensure the best outcome:
Lay off sugar, salty foods, alcohol, and fried foods the week before your exam
Avoid caffeine for 24 hours beforehand
Skip strenuous exercise for 24 hours prior
Stay well hydrated for at least 48 hours
Get a good night’s sleep
Request a morning appointment if possible
Take a cold or cool shower the day of the exam
Practice relaxation or meditation in the days leading up
Small steps can make a noticeable difference.
No Excuses, Please
One last, very important point.
Don’t use “getting into better shape” as an excuse to delay buying life insurance.
That’s a risky game.
No one plans for the unexpected, and waiting leaves you exposed. If you don’t get the rating you were hoping for, your policy can often be reviewed later.
For example, it’s common for people with high blood pressure or cholesterol to be re-rated after medication stabilizes their numbers, and premiums can come down.
Life Insurance Basics 101 takeaway:
The most important thing is to get some coverage in place.
You can always improve it later.
Using No Medical Life Insurance as a Tool
NOTE: If You Are Worried About Your Health And Haven't Been To The Doctor For A Couple Of Years, It's Not A Bad Strategy To Secure A No Medical Exam Policy First. It Will Give You Peace Of Mind That No Matter What Your Lab Results Are, Your Family Is Protected. A Word To The Wise? Most People Overestimate The Impact Of Their Condition On The Rates They Get. You Are Not The Best Judge Of Your Health And Chances Are You Have No Idea How Life Insurance Companies Underwrite Potential Clients. You'd Be Surprised By The People I've Gotten Fully Underwritten Coverage For.
Step 6: Waiting for the Decision: What Happens Next?
Once your application and underwriting are complete, the insurance company will provide one of four outcomes.
Let’s walk through them.
You’re Approved: Congratulations!
This is the outcome everyone hopes for.
The insurance company issues your policy, and coverage becomes effective once you sign the paperwork and pay your first premium.
That’s it.
From this point forward, if the worst happens, your loved ones are protected, and trust me, that peace of mind is real. Sleeping at night gets a whole lot easier.
You’ve Been Rated: Now What?
This one isn’t ideal, but it’s still a win.
A rating means you’ve been approved for coverage, just at a higher premium. Ratings are usually tied to health conditions, lifestyle factors, or higher-risk activities (yes… skydiving and alligator wrestling count).
Ratings typically range from 125% to 300% or more.
Here’s a simple example:
If your base premium was $100 per month and you receive a 150% rating, you’ll pay $150 per month.
At this point, you have options:
Accept the policy as offered
Apply with another carrier that may be more lenient
Improve the underlying issue and request a review later
Explore no-medical or simplified-issue options, which can sometimes be more affordable depending on the situation
Your Application Is Postponed
This one sounds worse than it is.
A postponement means the insurer isn’t ready to make a final decision yet. They may be waiting on missing information, additional test results, or more time since a medical event.
You’re essentially in a holding pattern.
In many cases, insurers ask applicants to wait 6 months to 1 year before re-evaluation. This is where guidance matters. The right agent can help you decide whether to wait, reapply elsewhere, or pursue another strategy in the meantime.
You’ve Been Declined
There’s no sugarcoating it, this one stings.
But don’t take it personally.
Declines happen most often due to health conditions, followed by driving history, financial concerns, or prior insurance issues. A decline doesn’t mean coverage is impossible — it just means that the insurer said no.
There are still paths forward, including targeting more lenient carriers or changing the type of policy you apply for.
When Simplified or No-Medical Insurance Makes Sense
If traditional underwriting doesn’t work out, simplified-issue or no-medical life insurance can be a very viable alternative.
This market segment has evolved dramatically.
More competition has lowered barriers, expanded eligibility, and made coverage available to people who would’ve been automatically declined years ago.
Not long ago, even mentioning cancer meant an instant “no.” Today, depending on the type, treatment, and time in remission, many applicants can still qualify for meaningful coverage.
This is just scratching the surface, but it’s important to know that options exist.
Life Insurance Basics 101 Bottom Line
There’s rarely just one path forward.
Whether you’re approved, rated, postponed, or declined, the key is understanding your options and choosing the strategy that protects your family now, not someday.
Final Thoughts: Life Insurance Basics 101
As you can see, Life Insurance Basics 101 covers more than just picking a number and a term length.
There are several moving parts when setting up a policy. A strong independent agent will take the time to complete a thorough needs analysis, looking at income replacement, debt, dependents, long-term goals, and budget to determine what type and amount of coverage make sense for you and your family.
The face amount, policy length, and type of life insurance are only the starting point. Carrier choice, underwriting guidelines, rate classes, and policy features all play a major role in whether your coverage is truly affordable and reliable over time.
And it’s worth repeating: insurers are not all created equal.
That’s why working with an independent agent, one who understands the market and can compare options objectively, matters.
Life Insurance Basics 101: Why Policy Architects?
Life insurance can seem straightforward because online quotes are fast and easy to get. But those quotes rarely tell the full story.
While online life insurance quotes can be helpful for estimates, they don’t always reflect final underwriting outcomes.
Different carriers assess risk differently. Small details in your health history, lifestyle, or application structure can mean paying significantly more than necessary—or being placed with the wrong product altogether.
That’s where Policy Architects comes in.
We help you cut through the noise, avoid “analysis paralysis,” and focus on what actually matters: the right coverage, from the right carrier, at the most competitive rate available to you.
Because we’re independent, we compare multiple insurers and underwriting philosophies to find the best fit, not just the first quote on a screen.
Best of all, our boutique, advisory-based approach doesn’t cost you anything extra. Our compensation is built into the policy by the insurer, not added on top.
A simple conversation can save you time, money, and unnecessary frustration, while giving you confidence that your coverage is built correctly from the start.
If you’re still unsure, exploring whether do I need life insurance applies to your situation is a helpful next step.
Save time. Save money. Skip the hassle.
Talk to Policy Architects today.
