Life Insurance for Married Couples in Canada: All You Need to Know

Term life and permanent life insurance are very different types of policies. The key difference is the lifespan of each policy type. You can ask your Alliance Income insurance broker to explain which policies are term and which are whole-life to ensure the best coverage for your needs.

• Term life insurance – lasts for a specified term, typically 10-30 years.
• Whole life insurance – lasts for the qualifying person’s entire life as long as the policy is active and not overdue for payment.

In most cases, term life insurance is more affordable, but it can be a gamble if you survive beyond the term limit. Once the term ends, you will need to reapply for life insurance and likely pay a higher rate due to advanced age and the accumulation of health issues.

Single life insurance policies are separate policies that each partner can establish for themselves while naming the spouse and children as beneficiaries. These policies are not dependent on marital status, unlike joint policies.

Single-life policies cover one individual and payout to the named beneficiaries at the time of death. Each partner can customize their terms, conditions, and premiums when using separate single-life policies.

Joint life insurance is similar to single life insurance in that it provides protection for specific circumstances that may arise in the future. However, it is unique because it only pays once, unlike a couple carrying dual single-life policies.

A joint life insurance policy is beneficial if one partner can’t qualify for their own life insurance due to health issues. A joint life insurance policy is often more affordable than multiple single-life policies due to the reduced underwriting that maintains each type of policy.

Let’s look at the options couples can use for their joint life insurance policy.

First to Die: Provide For Your Surviving Spouse

• Providing lost income replacement to the surviving spouse
• Protecting joint business ventures if one partner dies unexpectedly
• Paying off considerable debts (funeral expenses, credit cards, mortgages, etc.)

Once the insurer pays out the benefit, the coverage ends. The surviving spouse must reapply for new coverage if they wish to provide a separate death benefit for their loved ones when they pass.

Last to Die: Provide for Your Surviving Children

Last-to-die insurance only pays out when the last person named in a joint policy passes away. The surviving spouse must maintain the policy after their partner dies to ensure that the insurance stays active and available for the named beneficiaries.

Some situations when this insurance would be most beneficial include:

• Settling estate taxes to reduce the financial burden on the surviving family
• Creating a legacy for inheritors
• Reducing or eliminating outstanding debts

This type of insurance might be known as a survivorship policy. It is most useful for couples that want to provide financial security for their named heirs and beneficiaries. If you have concerns about providing for your surviving spouse, there may be better policies for you.

Drawbacks to Joint Life Insurance and Divorce

While joint life policies are very affordable, they can pose a few complications if your situation changes before the policy ends. If you and your spouse split up before the term is up, you will have to decide whether to:

• Update the policy by naming each other as “beneficiaries in trust” — meaning the surviving policyholder will manage the released funds for children or other named beneficiaries
• Keep the life insurance as is
• Decide to keep the policy for yourself or transfer ownership
• Cancel the policy entirely (losing your investment in the policy and incurring higher rates for a new policy)

Not all insurance providers offer the same options, so you will need to ask your provider what the policy enables you to do in the case of a separation or divorce. The best choice will depend on the unique factors in your life, and you will need to discuss these variables with your loved ones to ensure that you achieve your financial goals.

Multi-life insurance is a method of bundling a series of single-life insurance policies into one. Insurance providers often offer a reduced cost for combined or multi-life policies because the underwriters only have to pull one file to make updates as time progresses.

Essentially, combined life insurance allows two or more separate policies to join together while still allowing flexibility and affordability. Individuals can customize their personal insurance policies to their goals and priorities while avoiding the higher costs of separate insurance.

Some insurance providers may carry options for additional riders, including children’s life insurance coverage, as part of a bundling option to help you save money while preparing for the future. Be sure to explore all available coverage options to maximize your multi-life policy.

The DIME formula helps you calculate the most common expenses your family will face after your death. These costs typically include the following:

• Debts, loans, and end-of-life costs
• Income replacement estimates
• Mortgage payments
• Education and tuition fees

Debts

When a person dies, their debts can pass on to their loved ones — causing unexpected financial strain immediately after tragedy strikes. Gather a list of your existing and estimated future debts, such as:

• Automotive loans
• Business loans
• Credit card debts
• Funeral or cremation expenses
• Home repair payment plans

It’s okay if you can’t conceive of all of the possible costs that might accumulate over your potential lifetime. After listing the debts that will remain in your name, add them all together to determine the first portion of your customized, comprehensive coverage plan.

Example: $10,000 (outstanding auto loan) + $5,000 (estimated cremation costs) + $5,000 (plumber’s bill with interest) = $20,000 (estimated total debt)

Income Replacement

Now, it’s time to calculate how much income your surviving spouse could lose in the event of your death. Take your annual income and multiply it by the number of years your spouse would depend on it. Feel free to experiment with the number of years to determine the most affordable coverage to help you figure out the second portion.

Example: $100,000 x 5 years = $500,000 / $100,000 x 10 years = $1,000,000

Mortgage Payments

The third portion of your coverage aims to protect your home and keep it for your loved ones. This part of the formula is easy: write out the current total mortgage balance, including any interest and other payments defined in your contract.

Example: $120,000 (total mortgage balance)

Education and Tuition

If you plan on having or already have children, consider including enough money in the benefit total to cover education expenses. You’ll need to consider the location, travel or housing costs, tuition fees, and other expenditures that will factor into the total.

Remember to multiply the total college cost by the number of children you have. For the sake of simplicity, let’s say you have two children in our example.

Example: $50,000 (college costs) x 2 (number of heirs) = $100,000

Now that you have covered the most common expenses, you are ready to estimate your coverage amount. Add all the numbers together to determine the ideal policy for your loved one’s needs and goals for, say, 10 years.

Example: $20,000 (debt) + 1,000,000 (income replacement) + $120,000 (mortgage) + $100,000 (education) = $1,240,000 (total coverage goal)