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What is the cheapest life insurance policy?

SUMMARY

In general, term life insurance policies are the cheapest type of life insurance. However, with many different providers and policy types, the cost of life insurance varies greatly. Luckily, there are several things you can do to lower your premiums and get the cheapest life insurance policy available. Working with a broker, choosing fully underwritten policies, and opting for term life insurance coverage can all help to bring costs down.

IN THIS ARTICLE

There’s no getting around it, we Canadians love our bargains. In this inflating economy, we do our best to get the best deal we can! Whether it’s groceries, mechanics, or furniture, the promise of saving some cash is priority number one for many of us — insurance is no different. People want the cheapest life insurance policy that still has the most coverage. But finding an “affordable” life insurance policy will differ depending on each person’s unique circumstances.

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What is the cheapest life insurance policy?

In general, the cheapest life insurance is term life insurance. With term life insurance policies, you are only covered for a specific amount of time. This differs from other types of life insurance like a permanent policy (whole life or universal life insurance policy), where you are covered for your entire life.

The shorter the length of time you’re covered for, the cheaper your premiums will be. This is why policies that only last a year seem so affordable. But, buyer beware! With 1-year term policies, your premiums will increase every year when you renew. If you buy a 5 or 10-year term life insurance policy, your rates or locked in for that term.

types of life insurance like permanent life insurance

What is the most expensive life insurance policy?

The most expensive type of policy, in general, would be a permanent life insurance policy. Permanent insurance not only covers you for longer, but it also has the living benefit of a cash value component.  This life insurance plan builds a cash value as the years go by that you can use as a loan or borrow against. These policies also generate policy dividends that you can choose to reinvest in the policy or take for yourself as cash (sometimes known as the “savings component” of the policy). Because of these investment components, permanent insurance isn’t always the cheapest option.

Additionally, in general, permanent insurance has lower coverage amounts. People usually use the tax-free death benefit for things like funeral costs and estate planning, rather than covering their bigger outstanding debts like their mortgage.

Other types of policies can be expensive as well. For example, those who cannot get approved for traditional life insurance may opt for a simplified issue life insurance or no-medical life insurance policy. With these policies, the underwriting process is minimal, and usually no medical exams are required. Because there is little underwriting, the insurance companies don’t truly know the risk that they would have to pay out death benefits—so they set the price high, just to be on the safe side.

Should you get simplified or guaranteed no-medical life insurance?
what factors affect the cost of life insurance

How do insurance companies decide the price of life insurance?

The cost of insurance is determined by two types of factors – your personal history and health (which affect your life expectancy), and the details of your insurance policy. For your personal history, they will look at a wide range of details such as your:

  • Age
  • Smoking status
  • Health status
  • Mental health
  • Family health history
  • Occupation
  • Gender
  • Lifestyle choices

During the application process, you will decide on your basic policy details, which also affect the price. Factors that affect the price include:

  • Term length
  • Death benefit amount
  • Type of insurance
  • Cost and return expectations (for permanent insurance)

You can also choose to add life insurance riders to your term plans or permanent coverage, which add additional coverage but also come with additional costs. Some of these life insurance riders may include:

  • Accidental death rider
  • Child term rider
  • Critical Illness rider
  • Guaranteed Insurability rider

With these additional riders have usually minimal costs, you may find better value for your coverage when you buy separate policies.

How to find the cheapest life insurance

When you buy life insurance, the insurance company calculates the chances that they will have to pay your death benefit and when. The best life insurance companies in Canada use complex calculations to determine the cost of life insurance in this scenario. If you’re older, in poor health, and participate in risky activities, your life insurance rates will be higher because the chances of your death within the term would be higher than a young, healthy person who doesn’t smoke or skydive.

While showing all the math here will be tough, this article suggests six ways to help you find the cheapest life insurance policy that still meets your family’s financial protection needs.

1. Evaluate your premiums with a broker

We’re all unique, which is why life insurance policies never come with a single shelf price. Actuarial tables and other processes weigh our age, health conditions, hobbies, careers, stress levels, and more to determine how much we need to pay for life insurance.

An experienced life insurance broker can put their experience and access to multiple insurance products to good use to help find the best rates for your specific situation. Over time, they understand how insurers price their life insurance quotes and what your situation can mean to different providers. Basically, they shop around for you to make sure you’re getting the best form of life insurance for your needs.

Even if you already have a life insurance policy, speaking with a broker lets you check whether there are cheaper life insurance alternatives available. Age is a big factor in determining your life insurance premiums. But, there may be cheaper options, especially if you have recently made a big improvement in your health like giving up smoking (more on that later) or losing weight.

2. Consider an entirely new policy instead of renewing

When you renew your insurance policy when the term ends, you’ll likely renew it at a significantly higher premium. You may think that this is solely due to your older age. However, most term policies are guaranteed renewable at disproportionately higher prices to account for uncertainty about the changes in your health or lifestyle during the time you already had the policy.

By shopping around and working with a broker and using online tools to compare quotes, you can find insurers with substantially lower rates for your circumstances and needs and apply for a cheaper life insurance policy instead of renewing your current coverage.

3. Replace creditor or mortgage insurance with individual term life coverage

You may have bought mortgage insurance from your lender when you first bought your home. Mortgage insurance is often sold by banks to help your dependents pay off the mortgage on your home in case you pass away during the mortgage term. It’s commonly an alternative to life insurance because both products let your family feel financially stable if you die during the policy’s active period.

While there are plenty of pros and cons to purchasing mortgage insurance over other life insurance products, one key downside is that it’s typically more expensive than individual term life coverage. The higher price tag for mortgage insurance is due to the lack of any individual medical assessment required to qualify for it. Term life insurance is fully medically underwritten when you apply, and this typically results in the cheapest life insurance premium.

Learn more about mortgage life insurance.

4. Choose term life coverage over a permanent life insurance policy

Insurance is about offsetting risk. You buy insurance to ensure the financial stability of your family in the future. You buy term life insurance for needs that are short-term; whole life insurance (or universal life policies) is for permanent needs that do not disappear over time.

Permanent policies provide a guaranteed payout when you die, regardless of when that may be. With a term life policy, your survivors only receive a death benefit if you pass away within the set term you choose. This difference means term life policies are cheaper than their universal or whole life counterparts because the payout isn’t guaranteed for life.

You may only need life insurance for temporary financial burdens, like your children’s education or covering your remaining mortgage payments. In these cases, term life insurance products could be a cheaper alternative that provides the same benefit.

5. Get a medically underwritten policy instead of non-medical coverage

Life insurance policies that don’t require a life insurance medical exam can typically cost more than fully underwritten coverage. Without the usual medical questionnaire, the underwriters have less medical history to work with; therefore there’s a considerable risk to the insurer with non-medical life insurance. To compensate for the higher risk, the insurance company charges a higher premium.

These non-medically underwritten policies are generally for individuals with chronic or pre-existing health conditions.

But, if you consider yourself to have average or excellent health, purchasing a medically underwritten policy can save you a significant amount of money on your premium. The life insurance medical examination not only confirms your provided health details but also ensures there aren’t any unknown health issues.

Many of the biggest life insurance companies can offer up to $3 million in coverage without requiring a medical exam. Even if you have some pre-existing health conditions or an adverse family medical history, it is worth speaking with the best life insurance brokers to confirm if there are options for medically underwritten coverage that can save you hundreds of dollars in premiums versus non-medical options.

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6. Switch to non-smoker rates if you’ve quit smoking for at least one year

Smoking is a personal choice that comes with certain health risks. By now, every smoker already knows the ample health benefits of quitting smoking. There are benefits for your wallet too – not only because you spend less on cigarettes or vape juice.

Those who go tobacco-free for at least one year are eligible to switch to non-smoker rates on their life insurance policy. When you declare you’re “Tobacco-free” on your life insurance application, it means you no longer smoke cigarettes or cigars or use chewing tobacco, nicotine patches, e-cigarettes, vapes, or gum. It also typically means you can qualify for cheap life insurance rates. This could equate to significant savings – especially as you grow older. Smoker rates can be dramatically higher for older smokers.

Learn more about life insurance for smokers.

the cost of life insurance at different ages

What to look out for when buying life insurance

We know you’re looking for the best deal possible—if cost is your concern, then the cheaper the better! But, when you’re cutting life insurance costs, you have to remember the point of life insurance: to protect your family’s financial future. Sometimes cutting too many costs now will prevent your family from maintaining their standard of living in the future.

When you’re applying for life insurance, you should make sure your coverage amounts will take care of the following financial obligations:

  • Funeral expenses
  • Credit card debts
  • Student loan debts
  • Mortgage
  • Education costs
  • Other life expenses that you’ll want to cover for your family (childcare, groceries, vacations)

When shopping for the lowest life insurance rates, always keep your future financial obligations in mind. The cheapest life insurance company, may not always be the best for you in the long run. That being said, life insurance companies often have promotions for their term life insurance products to make sure your premiums don’t also become a financial burden.

Frequently Asked Questions

What Is the cheapest life insurance?

The cheapest life insurance is term life insurance. The shorter the term, the cheaper the policy. But the cost is also dependent on other factors as well, such as your personal health history, family history of medical conditions, your coverage amount, and more.

What is the most basic life insurance?

Term insurance is the most basic form of life insurance. The insurance company agrees to pay your family a death benefit if you die within a specified amount of time (a term). With some insurance providers, you can select terms for as short as 1 year and usually a maximum of up to 35 years. If you are young and healthy, the average cost of basic life insurance is under $200 a year (Please note: rates for life insurance will depend on a variety of factors, such as the ones mentioned above).

What is the minimum death benefit?

For many companies, term policies have a minimum death benefit of $50,000. For whole life insurance, insurers may offer as little as $10,000 so you can cover basic funeral costs. Some companies may have a minimum threshold on premiums paid as well. That being said, you want to make sure that your life insurance covers all the financial responsibilities that you’ll leave behind for your family.

What is a 1-year life insurance policy?

A 1-year life insurance policy is a term life insurance product. If you die within that year, the insurance company will pay your beneficiaries a death benefit. Technically, this is the cheapest policy that you can get in the short term, but it only covers you for a year—plus the cost for you will go up every year because you’re another year older. We would recommend going with a 5-year + policy that locks in your rate for longer.

Apply for cheap life insurance

Although there’s no one cheapest life insurance policy, there are ways to reduce your monthly premiums. Speak to one of our experienced advisors today to see if there’s a cheaper alternative for you that doesn’t sacrifice your family’s future financial safety. We work with a wide variety of life insurance providers (over 30, in fact!), so our advisors can help you shop for the most affordable type of life insurance with the best premium payments on the market. Whether you’re looking for term coverage, permanent life policies, or other types of coverage like critical illness, disability, or travel, our team can help!

With PolicyAdvisor, you can get online quotes for affordable term life insurance coverage, instantly and for free! Plus our online application process saves you time (which really means saving you money, right?).

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Call us at 1-888-601-9980 or book time with our licensed experts.
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KEY TAKEAWAYS

  • Work with a life insurance broker to compare different policy options and find one that fits your need and budget
  • If possible, opt for a medically underwritten policy as these come with lower premiums.
  • If premium cost is a key concern, term life insurance is reliably cheaper than whole life insurance.
  • Consider switching to a new policy if a better premium rate becomes available to you, whether through a health improvement or quitting smoking.

By Jiten Puri
CEO & Founder, Insurance Advisor, LLQP
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