How premiums are calculated
A Canadian life insurance premium is determined by six core variables. Age is the largest factor — every additional year of age increases your premium by roughly 4-8% for term policies and more for permanent. Gender affects pricing because actuarial tables show longer life expectancy for women, so women pay less than men of the same age and health. Smoking status roughly doubles or triples premiums; insurers consider you a non-smoker only after twelve consecutive months tobacco-free in most carriers' definitions. Health and family history are assessed through a confidential medical questionnaire and, for larger policies, a paramedical exam. Coverage amount scales the premium proportionally — but per-thousand pricing actually drops as you go higher, so $1,000,000 of coverage rarely costs ten times the price of $100,000. Finally, term length for term products: a 30-year term is more expensive than a 20-year term because the insurer is committing to a longer locked-in rate.
How a claim is paid
When a Canadian life insurance policyholder passes away, the named beneficiary contacts the insurer (or, more typically, the original LLQP-licensed advisor). The insurer requires a certified copy of the death certificate and a completed claim form. Standard claim payouts in Canada are processed within 14 to 30 days of receiving complete documentation — most major Canadian insurers, including Manulife, Sun Life, Canada Life, Industrial Alliance, and Empire Life, settle straightforward claims within two weeks. The death benefit is paid as a lump sum directly to the beneficiary, bypassing the deceased's estate entirely when a beneficiary is properly named.
Tax treatment under Canadian law
Life insurance death benefits paid to a named beneficiary are 100% tax-free in Canada under the Income Tax Act. The full amount passes directly to the beneficiary, is not reported as income, and is not subject to capital gains tax. Because the proceeds bypass the estate when a beneficiary is named, they also avoid probate fees — which in Ontario are 1.5% of estate value above $50,000 and can run into tens of thousands of dollars on larger estates. For corporate-owned policies, additional rules under the Capital Dividend Account allow Canadian-controlled private corporations to distribute the proceeds tax-free to shareholders. The Canada Revenue Agency publishes the full statutory framework.
Beneficiary designations
A revocable beneficiary can be changed by the policyholder at any time without that beneficiary's consent. An irrevocable beneficiary — most commonly named in divorce settlements or business buy-sell agreements — cannot be removed without their written consent. In Quebec, by default a spouse named as beneficiary is treated as irrevocable unless explicitly designated otherwise. Naming a contingent beneficiary is a small but critical step many Canadians overlook: if your primary beneficiary predeceases you and no contingent is named, the death benefit defaults back into your estate, triggering probate, creditor exposure, and the very tax exposure life insurance was meant to avoid.
