Personal Insurance
Personal insurance services offer individuals and families a range of financial protection options against unexpected life events. Unlike group benefits offered by an employer, these policies are purchased and owned by an individual.
- Life Insurance
- Disability Insurance
- Critical Illness Insurance
- Travel Insurance
- Retirement
Life insurance
Life insurance provides a tax-free, lump-sum payment to your beneficiaries if you pass away while the policy is active. It can help your loved ones cover funeral costs, replace lost income, pay off a mortgage or other debts, and maintain their lifestyle.
- Term life insurance: Provides coverage for a specific period, such as 10 or 20 years, making it an affordable option for covering financial obligations during a fixed time frame.
- Permanent life insurance: Offers lifetime coverage with premiums that typically remain fixed. Some permanent plans, like Whole and Universal life, can also build a cash value over time that can be accessed during your lifetime.
- No-medical or simplified issue: For those with pre-existing health conditions, this type of policy guarantees acceptance, often with no medical exam or health questions.
There are two main categories of life insurance: term and permanent. Each category includes various types of policies designed to meet different financial needs and long-term goals.
Term life insurance
Term life insurance provides temporary coverage for a specific period of time, such as 10, 20, or 30 years.
- Coverage: Provides a death benefit if you pass away within the specified term. If you outlive the policy, there is no payout.
- Cost: Initial premiums are typically lower and stay level for the duration of the term. If you renew the policy after the term ends, the premiums will increase.
- Cash value: Term policies do not accumulate a cash value or investment component.
- Best for: Covering financial needs with a foreseeable end, such as paying off a mortgage, covering the cost of raising children, or replacing lost income during your working years.
Permanent life insurance
Permanent life insurance offers lifelong coverage, protecting you for your entire life as long as premiums are paid.
- Coverage: Your beneficiaries are guaranteed a death benefit, regardless of when you pass away.
- Cost: Premiums are higher than term policies initially but typically remain level and fixed throughout the policy's life.
- Cash value: A portion of your premium is placed into a tax-sheltered investment account, which grows in cash value over time. You can borrow against or withdraw from this cash value while you are alive.
- Best for: Long-term goals like estate planning, providing for a lifelong dependent, or covering final expenses.
Types of permanent life insurance
- Whole life: This policy provides guaranteed premiums, a guaranteed death benefit, and guaranteed growth of the cash value. It is designed for simplicity and predictable accumulation.
- Universal life: This policy offers more flexibility in both premiums and the death benefit. The cash value growth is tied to investments and depends on market performance, but it may also include a guaranteed minimum interest rate.
- Term-to-100: Considered a permanent policy in Canada, this plan provides lifelong coverage with fixed premiums that stop at age 100. Unlike whole or universal life, it does not build cash value.
- Participating vs. Non-Participating: Some whole life policies are "participating," meaning policyholders may receive dividends from the company's profits. "Non-participating" policies do not offer dividends.
Other life insurance types
Beyond the primary categories, several other policy types can address specific needs:
- Final Expense (Burial) Insurance: A type of whole life policy with a smaller, more affordable death benefit designed to cover end-of-life expenses.
- Guaranteed Issue Life Insurance: Policies that do not require a medical exam or health questions, ensuring acceptance within an eligible age range. These are typically more expensive with lower coverage amounts.
- Simplified Issue Life Insurance: Requires you to answer a few health questions but not undergo a full medical exam. It can be approved faster than traditional policies but usually carries higher premiums.
- Group Life Insurance: Coverage provided through an employer, union, or association. Premiums are based on the average risk of the entire group, often making it more affordable.
- Joint Life Insurance: Covers two people under one policy. It can be a "first-to-die" policy, paying out after the first death, or a "last-to-die" policy, paying out after both policyholders have passed.
Choosing the right type
The right type of life insurance depends on your individual financial goals and needs.
- For affordability and temporary needs: Term life insurance offers cost-effective coverage for a specific period, such as raising a family or paying down a mortgage.
- For lifelong coverage and wealth building: Permanent life insurance is better suited for estate planning or accumulating cash value over time
Health and living benefits
These insurance plans fill in the gaps for healthcare services not covered by the public provincial plan, New Brunswick Medicare.
- Individual health and dental plans: These plans cover expenses such as prescription drugs, dental services, vision care, and paramedical services (e.g., physiotherapy). Providers like Medavie Blue Cross offer various personal plans.
- Guaranteed issue health plans: These plans are available for individuals who may not be able to get traditional health coverage due to pre-existing conditions.
- "FollowMe" health plans: Manulife offers plans for individuals who have lost their employer's group coverage due to job change or retirement. Acceptance is guaranteed if you apply within a certain timeframe.
- Disability insurance: Replaces a portion of your income if you are unable to work due to a serious illness or injury.
- Critical illness insurance: Provides a tax-free, lump-sum payment if you are diagnosed with a covered serious illness, such as a heart attack or cancer.
- Travel insurance: Offers coverage for emergency medical expenses, trip cancellations, or lost baggage while traveling outside your province.
Under Disability Insurance
Personal disability insurance can be categorized based on its duration (short-term vs. long-term), its definition of what constitutes a disability ("own occupation" vs. "any occupation"), and various optional features called riders.
Short-term vs. long-term policies
You can purchase short-term and long-term coverage individually to supplement or replace any employer-provided plans.
- Short-term disability (STD) insurance: Provides a monthly benefit for a limited time, typically up to six months, if you are temporarily unable to work due to an injury or illness.
- Long-term disability (LTD) insurance: Covers disabilities that last for an extended period, potentially for several years or until retirement age (e.g., 65). This is the most common type of personal disability policy.
Occupation definitions
This is one of the most critical aspects of a personal disability policy. It determines the criteria you must meet to receive benefits.
- "Own occupation" disability: You are considered disabled if you cannot perform the duties of your specific job. Some "own occupation" policies may only apply this standard for a limited period, such as the first two years of a claim.
- "Any occupation" disability: A less protective and less expensive option where you are only considered disabled if you are unable to perform any job for which you are reasonably qualified by education, training, and experience.
- "True own occupation" disability: This is the most comprehensive and expensive option. It pays benefits if you can no longer perform your own job, even if you are working in another position.
Policy riders
Personal disability policies are highly customizable through riders, which are optional add-ons that cost extra but enhance your coverage. Common riders include:
- Future Increase Option (FIO) rider : Guarantees you the right to purchase more coverage later, regardless of your health status. This is especially useful for younger people whose incomes are likely to increase.
- Cost of Living Adjustment (COLA) rider: Automatically increases your benefit payment annually while you are disabled to keep pace with inflation.
- Residual or Partial Disability Benefit rider: Pays a partial benefit if you can work but are earning less due to your disability. For example, if you can only work part-time while recovering.
- Return of Premium (ROP) rider: Refunds a portion of your paid premiums if you don't make a claim by the time the policy expires.
- Accidental Death and Dismemberment (AD&D) rider: Provides a payout if you die or lose a limb or your sight as a result of an accident.
- Waiver of Premium rider: Waives premium payments while you are disabled and receiving benefits. Most quality personal policies include this feature.
Specialized personal policies
- For the self-employed: Individuals who are self-employed or run a small business often purchase individual disability policies to protect their income, since they typically lack access to group benefits.
- Business Overhead Expense (BOE) insurance: A separate policy for business owners that covers business expenses like rent, utilities, and employee salaries if the owner becomes disabled.
- Guaranteed issue or simplified issue insurance: Policies with no medical exam and fewer health questions. These are typically more expensive with lower coverage amounts and are suitable for those who may not qualify for a standard policy due to their health.
Critical illness insurance
Personal critical illness insurance in Canada comes in several forms, which are mainly distinguished by their coverage length, features, and flexibility. Unlike a group plan, which has fixed terms, a personal policy can be customized to your specific needs.
Types by duration
- Term critical illness insurance: Provides coverage for a specific period, such as 10, 20, or 25 years. This is the most affordable option, and the premiums remain level throughout the term.
- Permanent critical illness insurance: Offers lifelong coverage as long as the premiums are paid. This type is more expensive than term insurance but provides guaranteed protection for life.
Types by features
- Return of premium (ROP): This optional feature is available with both term and permanent critical illness policies.
- Return of Premium on Expiry: Refunds some or all of your premiums if you outlive the policy's term and have not made a claim.
- Return of Premium on Death: Some policies will refund all or a portion of your premiums if you die while the policy is in effect, but before claiming a critical illness benefit.
- Simplified or guaranteed issue: These policies are designed for individuals who may not qualify for standard critical illness insurance due to a pre-existing health condition.
- Simplified issue: Requires you to answer a few health questions but does not require a medical exam.
- Guaranteed issue: Guarantees acceptance within an eligible age range and requires no medical questions.
Both options are typically more expensive with lower coverage limits than a fully underwritten policy.
- Multi-coverage policies: Some insurers, such as Manulife, offer policies that bundle critical illness with other coverages, like life and disability insurance, under a single plan.
Common riders
Policy riders are optional add-ons that can enhance your coverage for an extra cost.
- Partial payout rider: Provides a smaller, partial payment (e.g., 15–30%) for less severe conditions that are not eligible for a full payout, such as an early-stage cancer.
- Future increase option (FIO) rider: Gives you the option to increase your coverage amount at specific intervals without undergoing further medical underwriting.
- Waiver of premium rider: Waives premium payments if you become totally disabled and are receiving disability benefits.
Standalone policy vs. rider
Instead of a standalone critical illness policy, you can sometimes purchase it as a rider on a life insurance policy.
- Standalone policy: Offers comprehensive coverage and a greater number of illnesses covered. The payout is separate from any life insurance you hold.
- Critical illness rider: Generally less expensive and does not require a medical exam, but it typically offers a lower benefit amount and has a more limited scope of coverage.
Choosing the right type
The best personal critical illness policy depends on your financial situation and health needs.
- For affordability: A term critical illness policy provides temporary coverage at a lower cost, suitable for covering large debts like a mortgage.
- For comprehensive, lifelong coverage: A permanent policy with optional riders offers broader protection and the most flexibility.
- For those with health concerns: Simplified or guaranteed issue policies offer a way to get coverage when standard policies are not an option.
- For budget-conscious buyers: Adding a critical illness rider to an existing life insurance policy provides a basic level of protection at a lower cost than a standalone plan.
Travel insurance
Travel insurance in Canada is available in various forms, which are typically categorized by the type of coverage, the duration of the trips, or a comprehensive package that combines multiple benefits.
By coverage
- Emergency Medical Insurance: This is the most critical type of travel insurance for Canadians, as provincial health plans offer very limited or no coverage for medical emergencies outside your home province or country. A policy covers expenses related to unexpected injury or illness, including:
- Hospital and doctor fees
- Ambulance transportation
- Emergency dental care
- Medical repatriation
Some plans also include coverage for COVID-19 related emergency medical costs.
- Trip Cancellation and Interruption Insurance: This coverage protects your financial investment in a trip. You should purchase it as soon as you book your travel.
- Cancellation: Reimburses you for prepaid, non-refundable expenses if you must cancel your trip before you depart for a covered reason, such as a medical emergency, job loss, or a death in the family.
- Interruption: Reimburses you for the unused portion of your trip and additional travel expenses (like return flights) if you must return home early for a covered reason.
- Baggage Insurance: This covers the loss, theft, damage, or delay of your luggage and personal effects during your trip.
- All-Inclusive or Comprehensive Package: For convenience, you can purchase a single policy that bundles multiple coverages, including emergency medical, trip cancellation, and baggage insurance.
By trip duration
- Single-Trip Travel Insurance: This policy covers a single trip, with coverage starting on the departure date and ending upon your return. It is most suitable if you travel infrequently.
- Multi-Trip (Annual) Travel Insurance: This plan covers all your trips within a 12-month period. It can be more cost-effective if you take two or more trips a year, even if they are short. A maximum length per trip applies, but top-up coverage is often available for longer excursions.
- Long-Term Travel Insurance: This is designed for extended trips, such as studying abroad or working remotely, and can provide coverage for periods longer than a standard multi-trip policy, sometimes up to a year or more.
Other specialized types
- Visitors to Canada Insurance: If you have friends or family visiting from outside Canada, this type of insurance covers emergency medical costs for non-residents during their stay.
- Top-up Insurance: If your current travel insurance—from a credit card or multi-trip plan—does not provide enough coverage for a specific trip, you can purchase a top-up plan to extend your benefits or duration.
Retirement Plans
In Canada, personal retirement plans typically fall into two main categories: registered and non-registered. Registered plans offer specific tax advantages, while non-registered plans provide greater flexibility and no contribution limits.
Registered plans
Registered plans are tax-assisted arrangements regulated by the federal government. The two most common are the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA).
Registered Retirement Savings Plan (RRSP)
RRSPs are designed to help Canadians save for retirement by offering a tax deduction on contributions.
- Tax benefits: Contributions are tax-deductible, which can lower your taxable income in the year you contribute. The investments within an RRSP grow on a tax-deferred basis.
- Withdrawals: Funds are taxed as income when withdrawn. The idea is that you will be in a lower tax bracket in retirement, so you will pay less tax than when you were earning a higher income.
- Contribution limit: The annual limit is based on a percentage of your previous year's earned income, up to a maximum amount. Unused contribution room can be carried forward.
- Age limit: You must convert your RRSP to a Registered Retirement Income Fund (RRIF) or an annuity by the end of the year you turn 71.
- Special programs: You can make tax-free withdrawals for a first-time home purchase through the Home Buyers' Plan (HBP) or for education through the Lifelong Learning Plan (LLP), provided you repay the funds.
Tax-Free Savings Account (TFSA)
TFSAs are more flexible savings tools that can be used for any financial goal, including retirement.
- Tax benefits: Contributions are made with after-tax dollars and are not tax-deductible. However, all investment growth and withdrawals—including interest, dividends, and capital gains—are completely tax-free.
- Withdrawals: You can withdraw funds at any time, for any reason, without paying tax. The amount withdrawn is added back to your contribution room in the following calendar year.
- Contribution limit: The annual dollar limit is set by the government. Unused room carries forward and can accumulate indefinitely.
- Age limit: There is no age limit for making contributions, as long as you are at least 18 years old and a Canadian resident.
- Impact on benefits: TFSA withdrawals do not count as taxable income and do not affect income-tested federal benefits like Old Age Security (OAS).
Non-registered plans
These are standard investment accounts that do not have tax advantages and are not registered with the government.
- Contribution limits: There are no limits on how much you can contribute.
- Tax implications: You must pay tax on any investment income, dividends, and capital gains generated within the account. However, you can use capital losses to offset capital gains.
- Flexibility: These accounts offer total freedom and control over your money, with no age restrictions or withdrawal penalties. They are often used after an individual has maxed out their registered plan contributions.
How to choose between an RRSP and a TFSA
Since both plans have unique benefits, your personal situation should guide your choice.
- Tax bracket: If you are in a higher tax bracket during your working years and expect to be in a lower one during retirement, an RRSP is often more advantageous due to the immediate tax deduction.
- Flexibility: If you may need to access your savings before retirement for things like a down payment or unexpected expenses, a TFSA is more flexible due to its tax-free withdrawals.
- Long-term strategy: For many people, the best strategy is to use both. Contributing to an RRSP can lower your current income and potentially push you into a lower tax bracket. You can then use any tax refund generated to contribute to your TFSA.