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What is an Annuity and How Does it Work?

11 Min Read
Fiona Campbell
what is an annuity

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From an early age, many Canadians hear the same message about retirement: save early, save often. But as retirement approaches, that focus often shifts. It’s no longer just about the size of your savings — it’s about sustainability. Will my retirement savings last as long as I do?

It’s a real concern. According to an Ipsos poll, nearly one in three (32 per cent) Canadians over age 50 worry they could outlive their retirement savings by at least 10 years. And with Canada’s life expectancy rising, retirement can easily span decades.

Even so, many Canadians lean on familiar savings plans — like RRSPs, TFSAs, RRIFs, and government benefits — to fund retirement. These accounts can be an important piece of the retirement puzzle. But only a small percentage (7 per cent) are tapping into annuities, even though they’re specifically designed to help address one of retirement’s biggest risks: outliving your savings.

If you’re looking to build more certainty in your retirement plan, this guide explains what is an annuity, how it works, the types available, and how it can help support long-term financial security for you and your loved ones.

Key takeaways

  • An annuity is a financial contract between you and a life insurance company. In return of a lump sum payment(s), you receive a guaranteed, pre-determined income for a set term or for life.

  • A payout annuity converts a portion of your savings into predictable income that isn’t tied to market performance.

  • There are three types of annuities in Canada: Single life annuity, Joint life annuity and Term certain annuity.

  • The benefits of annuities for Canadians include: guaranteed retirement income, tax benefits, protection from market volatility, and help with estate planning.

  • Your annuity income is based on some key factors including : the amount you invest, current interest rate, your age and sex, type of annuity, and payment start date.

What is an annuity?

An annuity is a financial contract between you and a life insurance company. You make a lump sum payment (or a series of payments), and in return, the insurer provides you with a guaranteed, pre-determined income — either for a set period of time (called a term certain annuity) or for the rest of your life (called a lifetime annuity).

Unlike retirement savings accounts that stay invested and require ongoing management, an annuity works differently. Your income is set when you buy it and doesn’t rise or fall with the markets. In exchange, the insurance company assumes the market risk and possibility that you live longer than expected.

Why buy a payout annuity?

Many Canadians heading into retirement worry about outliving their savings — and it’s not an irrational fear. According to Statistics Canada, life expectancy at birth is now 82 years, with women expected to live longer than men (approximately 84 years versus 80 years). Canadians are living longer, and that means retirement may last 20, 25, or even 30 years — and your savings need to keep up.

Government benefits — such as the Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS) — can provide a helpful foundation of income. But with inflation and the rising cost of living, they may not be enough to fully cover daily living expenses or the lifestyle many retirees have planned.

That means personal savings often need to bridge that gap. Accounts like RRSPs, TFSAs, and RRIFs can grow over time, but their value depends on investment decisions and market conditions. Staying invested in stock markets carries risk since values can rise or fall, while shifting too heavily into cash or low-yield options can cause inflation to quietly erode your purchasing power over time.

A payout annuity takes a different approach. It converts a portion of your savings into predictable income that isn’t tied to market performance. Payments continue according to the terms you chose, helping bring greater stability to your retirement income plan.

How do payout annuities work?

At its core, a payout annuity converts a portion of your savings into predictable retirement income. Setting one up involves a series of decisions:

1. Choose the annuity type

Start by selecting the annuity structure. Do you want payments to last for a fixed period (e.g., 5 years) or for the rest of your life? Should payments continue to a spouse or beneficiary after your death? It all depends on your goals.

2. Select optional features

Some payout annuities offer additional features, such as a minimum payment guarantee period. This means that if the annuitant passes away within a set timeframe, the remaining payments are paid to your beneficiary as a lump sum or as continued payments.

You may also have the option to include indexing features designed to help offset inflation by gradually increasing payments over time.

3. Determine the amount to invest

How much you invest determines the income you receive. The larger the purchase amount, the higher the guaranteed payments will generally be.

4. Choose your funding source

A payout annuity can be funded using money from registered accounts (RRSP, RRIF, DPSP, etc.) or non-registered savings accounts. The tax treatment depends on where the funds come from.

5. Decide how and when to purchase

You can buy an annuity with a single lump sum or through multiple purchases over time. Some people opt to purchase smaller annuities over time (known as “laddering”) to diversify interest rate timing.

6. Select your payment start date and frequency

You can begin receiving payments immediately or defer to a future date. In many cases, deferring payments may result in a higher income, as the funds continue earning interest within the annuity contract before payments start.

Payments are typically made monthly, quarterly, semi-annually, or annually, depending on what best supports your cash flow needs.

7. Work with a professional

A payout annuity is typically just one part of a broader retirement strategy. A licensed insurance advisor can help you evaluate your options, manage tax considerations, and determine how an annuity might align with your long-term goals. Because most annuities are irrevocable once purchased, it’s important to move forward with clarity and confidence.

RBC Insurance offers an online annuity calculator that lets you estimate potential income based on factors such as your sex, purchase age, and contribution amount. You can also compare this to the income you could receive from a RRIF.*

Note: This contribution range for the calculator is between $50,000 and $500,000, but the upper limit is typically $1 million. Contact an RBC Insurance advisor to learn more and get a personalized quote.

Types of annuities in Canada

While annuities can include different features, there are three main types available in Canada:

  • Single life annuity: Provides guaranteed income for one person (the annuitant) for life. Payments stop when the person dies, unless a guaranteed period option was selected, in which case remaining payments during that period go to a  beneficiary.

  • Joint life annuity: Provides guaranteed income for the lifetime of two people. When the first person dies, payments continue to the surviving annuitant.Payments continue until the second annuitant passes away and may also include a guaranteed period.

  • Term certain annuity: Provides guaranteed income for a fixed period (e.g., 10 or 20 years) or until a specified age. If the annuitant dies during the term, payments typically continue to the beneficiary for the remainder of that period.

What are the benefits of annuities for Canadians?

Payout annuities offer several key benefits that can make them a valuable part of a comprehensive retirement strategy. Here’s where they may make a difference.

Guaranteed retirement income

One of the biggest retirement worries? Running out of money. An annuity helps address that longevity risk by providing income that can even continue for as long as you live, depending on the terms you selected. That steady stream can help cover essential expenses, giving you more flexibility and peace of mind with your remaining savings.

Tax benefits

How your annuity income is taxed depends on how it’s funded. If you used money from an RRSP, RRIF, or pension plan, your annuity payments are generally fully taxable as income. That’s because you’re buying the annuity with pre-tax dollars — you received a tax deduction when you contributed, so the income is taxed when it’s withdrawn. In that sense, the tax treatment is similar to drawing income directly from your RRSP or RRIF. However, fixed annuity payments can help make your annual tax obligations more predictable.

If funded with non-registered savings, only a portion of each payment is taxable, since you have already paid tax on this money. In some cases, taxation may be level over time, depending on the structure of the annuity. This can help create greater consistency in your after-tax income.

Another benefit: Depending on your age and circumstances, annuity income may also qualify for the federal pension income tax credit.

Protection from market volatility

Markets move. That’s normal. But in retirement, income stability often matters more than growth. In a market downturn, the value of market-based investments may decline — and retirees may have less time to recover from significant losses.

An annuity’s payments don’t rise or fall with the stock market. Once established, your income continues according to the terms of the contract, which can help reduce uncertainty in your overall plan.

Estate planning

Annuities can help provide continuity of income for the people who matter most. With a joint life annuity, payments can continue to a surviving spouse or partner, helping maintain financial stability after a loss.

If you choose a guaranteed period and name a beneficiary, any remaining payments during that time may go directly to them. In many cases, this can also help avoid probate, which may speed up the transfer and possibly reduce estate-related costs.

For some families, annuities can be a straightforward way to provide ongoing income to children or grandchildren. But the right approach depends on your broader financial plan, so it’s worth discussing with an advisor.

Simplicity

An annuity is set up once, and your income payments are locked in from the start. There’s no need to rebalance a portfolio, pick funds, or keep tabs on the markets.

Unlike many investments that charge ongoing management fees, an annuity’s costs are generally built into the product when you purchase it. That means you’re not dealing with annual portfolio fees year after year.

Because the income amount is set in advance, budgeting can feel more straightforward. For many retirees, that simplicity is part of the appeal.

What determines your annuity payout?

Annuity income isn’t random. It’s based on a few key factors that help determine how long payments are expected to last and how much income can be generated. Here’s what generally feeds into the equation:

  • The amount you invest. The more you contribute, the higher your income payments will generally be.

  • Current interest rates. Interest rates at the time you purchase the annuity can play a major role. In general, higher interest rates lead to higher payments. Lower interest rates can mean lower payouts.1

  • Your age. Generally, the older you are when you buy an annuity, the higher your payments will be. That’s because payments are expected to be made over a shorter period of time.

  • Your sex. Because women statistically live longer than men, payments for women are typically lower for men of the same age and premium.

  • Type of annuity. Different annuity structures affect payouts. For example, a term certain annuity that pays income for a fixed period will usually provide higher payments than a lifetime annuity, which is designed to pay for as long as you live.

  • The payment start date. If you choose to defer payments, your income may be higher because the funds have more time to earn interest before payouts start.

Invest in your future with payout annuities

Retirement planning often comes down to one basic question: will your income last as long as you do?

Annuities offer one way to turn savings into scheduled income — whether for life or for a set period of time. By providing payments that aren’t tied to market performance, they can add stability to a broader retirement strategy.

Like any financial decision, the right approach depends on your personal goals, tax situation, and existing sources of income. Taking the time to understand your options can help you make more confident choices. If you’re considering whether an annuity might fit into your retirement plan, speaking with a licensed insurance advisor can help you explore the available options and determine what works best for your needs.

RBC Retirement Investment Solutions

Whether you’re building up your nest egg or ready to turn your hard-earned savings into retirement income, our solutions can help you make the most of your money. Have an RBC Insurance Advisor call you to learn more.

*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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Life Insurance for Children: A Guide for Parents

10 Min Read
Corrina Allen
Life insurance for children

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People often purchase life insurance as a way to protect their loved ones in the event of their own death. So it can make parents feel strange, awkward or uncomfortable to think about purchasing life insurance for their child.

No parent wants to think about something terrible happening to their kids. However, having a financial safety net to protect your family during a tragic loss isn’t the only reason to purchase a life insurance policy for kids.

Getting life insurance early can set your kids up with paying low-cost premiums for life while simultaneously ensuring they are protected as adults. Certain types of life insurance policies can even act as a savings tool, one that helps to secure your children’s financial future.

Key takeaways

  • Getting life insurance for your child isn’t just about having financial security in the face of a tragedy – it can also benefit your child in the long term.

  • The two most common types of life insurance purchased for children are child term riders and whole life insurance.

  • Purchasing life insurance for a child can help guarantee their future insurability as an adult.

  • Participating whole life insurance policies offer cash savings components that can help support your child in paying university tuition or buying their first home.

  • Child term riders offer more affordable coverage and can be applied to more than one child.

How does life insurance for children work?

In Canada, only parents, grandparents, and legal guardians can purchase a life insurance policy for a child. When a policy is purchased, the child is the policy holder (the person insured) and the parents are typically the beneficiaries. That means if a fatality were to occur, the parent, as beneficiary,would receive the death benefit payout.

For adults with life insurance coverage, a death benefit payout is meant to address certain end of life expenses – think: outstanding bills, funeral costs, or loss of income for dependants. Children, of course, don’t have their own expenses but a death benefit payout can cover funeral costs and allow families time to grieve without the additional stress of having to return to work immediately in order to avoid a disruption in their income.

A life insurance policy for a child can usually be purchased soon after they’re born. Most providers require that children be at least between 15 and 60 days old. Typically, there’s a 24-month waiting period where the death benefit payout will typically remain limited to what had already been paid in premiums.

Benefits of life insurance for children

It’s hard to think about our children encountering any kind of difficulty or tragedy but life insurance policies aren’t only about the worst case scenario. Young policy holders have access to financial benefits that can be a real advantage to them as they enter adulthood.

Here are a few ways life insurance benefits kids:

Guaranteed future insurability for your child

Purchasing a life insurance policy for your child is a way to future-proof their insurability as they grow up. This means your child can convert their policy as an adult (usually around the age of 25) and continue to be insured without a medical questionnaire or exam. Should your child be diagnosed with a chronic illness like diabetes or epilepsy, they won’t have to worry about paying higher premiums or facing obstacles in obtaining coverage.

Lower premiums

Because premiums are based on factors related to age and health, insuring kids while they’re young means that you’re able to lock in low rates, often for life. Purchasing a plan for a young child can result in cost savings in the long term.

Build wealth and savings for the future

Whole life insurance plans have a built-in savings component that your child could rely on when it comes time to pay for post-secondary education or to put a downpayment on their first home. The cash value component of their policy, which accumulates over the course of their childhood and teen years, can be withdrawn without any tax penalties once they reach the age of majority.

Financial protection and peace of mind

First and foremost, life insurance is designed to secure the wellbeing of your family by protecting you financially in the event of a loss. While no one wants to think about the loss of a child, there is some peace of mind in knowing that should the worst happen, the cost of a funeral and other end of life expenses would be covered. Your family would have the time and space to grieve without the additional burden of financial stress or worry.

Types of life insurance for children

In Canada, there are two common types of life insurance coverage available for children. Each has its own set of pros and cons, so it’s up to parents to decide which kind of policy is the best fit in terms of both your goals and your budget.

Child Term Rider (CTR)

A child term rider (CTR) offers one of the most affordable ways to purchase coverage for your kid. A rider is added on to an existing policy (such as your own whole or term life insurance coverage) and provides guaranteed insurability up to the age and amount indicated by your insurance provider.  Child term riders are designed to cover multiple kids under one policy, whether they are your biological children or legally adopted.

When the term of coverage ends, the policy can be transferred to your adult child for an additional term (period of coverage) or to permanent coverage, often without requiring a medical exam. CTRs are relatively low cost additions to your own coverage and offer good value for money. Child term riders are available on term life, universal life, and whole life insurance. 

Pros and cons of Child Term Rider

The benefits of a child term rider include:

  • Low cost coverage for your kids.

  • The ease of adding coverage to your already existing life insurance.

  • The option to cover more than one child on the rider.

  • Your children aren’t required to undergo a medical exam if they convert to an adult policy.

The drawbacks of a child term rider include:  

  • A lower death benefit payout than other types of policies.

  • Coverage is contingent upon a parent’s initial policy remaining active.

  • Policies don’t offer a savings or cash value component.

Whole life insurance for children

Whole life insurance for kids offers permanent coverage with tax advantage savings in a standalone policy that isn’t tied to a parent, grandparent or guardian. With this type of coverage, your kids will have their own policy that they can extend into adulthood, while paying the same fixed premiums and enjoying the benefits of a tax-deferred cash value component. Once they’re adults, your kids could withdraw or borrow against the policy in order to fund post-secondary education, take a gap year, or purchase their first home.

Pros and cons of whole life insurance for children

The benefits of a whole life policy for kids include:

  • An investment component that can give your child a financial headstart when they reach adulthood.

  • Coverage is locked in and secured when children are young and healthy.

  • Tax-deferred growth that offers investment flexibility.

The drawbacks of a whole life policy for kids include:

  • Whole life insurance is more expensive that the cost of a child teem rider.

  • Each policy only cover a specific individual meaning that families with more than one child require multiple policies to ensure each child is protected.

Some insurance companies also have the option to purchase standalone renewable term coverage for a child, which offers pros and cons similar to a child term rider.

What to consider when buying life insurance for your child

If you’re thinking about purchasing a life insurance policy for your child, you’ll want to think about the following:

What are your insurance needs? Are you purchasing a plan in order to provide your family with financial security and peace of mind? Or are you also pursuing a goal to help build a financial foundation and offer your child a financial head start when they reach adulthood?

What is your budget? Whole life insurance policies come with higher monthly premiums and require you to purchase separate policies for each child you insure. Child term riders typically cover every child in your household at a lower monthly cost. Run the numbers ahead of time to ensure you can comfortably afford coverage in the long-term.

For how long and how much coverage are you seeking? Some parents may simply want to be sure that they have enough insurance to cover end of life or funeral costs while others would like to have a financial safety net in place for their family should the unthinkable occur. With RBC Insurance, coverage amounts for child term riders typically start at $5,000 and go up to as much as $30,000.

Speak to an advisor: A licensed insurance advisor can help you choose a policy option based on your specific needs and your family’s financial goals.

Is life insurance right for your kids?

Every parent or grandparent hopes that a life insurance policy for the children in their family is something they never need. However, understanding the benefits – such as lower premiums over the course of your child’s lifetime, future guaranteed insurability, and the opportunity to build wealth – should play an important role in your decision-making. If you’re considering purchasing life insurance for your children but aren’t sure which type of coverage suits your family’s financial needs, contact a trusted insurance advisor to help guide you towards the best decision for your kids and their future.

FAQs about life insurance for children

Can I buy life insurance for my baby?

Yes, children as young as 14 days old  can be insured but it’s important to keep in mind that the death benefit payout will remain limited for the first two years of coverage.

Is life insurance worth it for children?

The answer depends on the unique financial goals and needs of your family. Life insurance for children offers peace of mind and financial support for families in the face of a bereavement but you might also want to consider life insurance for your child if you’re concerned about their future insurability or if you want to use your child’s policy as a vehicle for building wealth.

How much life insurance does my child need?

Coverage amounts are determined by your needs as a family and your financial goals for your child’s future. Some families may only want enough insurance to cover funeral costs while others would like a more substantial financial safety net. Child term riders typically offer coverage from $5,000 to $50,000 depending on the policy.

Can I buy life insurance for my grandchild?

Yes, in Canada parents, grandparents, and legal guardians are permitted to purchase life insurance for children.

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*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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How Much Does Term Life Insurance Cost in Canada

10 Min Read
Sandy Yong

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When Canadians consider the affordability of life insurance, common concerns come to mind. How much coverage do they need? Can they afford the monthly premiums? This is where term life insurance comes in. Term life insurance can be a suitable choice for young, healthy individuals seeking coverage for a specific period. And it’s usually a cheaper option compared to permanent life insurance.

If you’re wondering how much term life insurance will cost you, we’ll explain how premiums are calculated, and help you determine the coverage you need. Once you understand the average life insurance cost per month, you’ll be able to make an informed decision about buying term life insurance based on your unique circumstances.

Key takeaways

  • Term life insurance offers affordable, flexible coverage that could be converted to permanent coverage in the future.

  • Some of the factors that determine how much term life insurance costs are age and sex, health and lifestyle, smoking status, term length, and coverage amount.

  • Typically, insurance experts recommend that Canadians purchase insurance equal to seven to 10 times your annual income.

  • Strategies to help save on term life insurance costs include improve your health, quit smoking, compare quotes, and speak to a licensed insurance advisor.

What is term life insurance?

Term life insurance provides a financial safety net for individuals seeking coverage for a set period, rather than for their entire lives. It’s cost-effective and depending on the policy, may not require a medical exam. With term life insurance, you pays a monthly premium to the insurer for the specified term – usually 10, 20, and 30 years.

Should you pass away during this term, your beneficiary would receive a tax-free death benefit that can help cover financial obligations. As an example, your loved ones could use the lump-sum payment to replace your lost income, pay off debt such as a mortgage, or save for a child’s education.

Learn more about how term life insurance differs from permanent life insurance.

Why choose term life insurance

Term life coverage offers a variety of benefits, including:

More affordable: Compared to permanent life insurance, term life is less expensive. If you’re on a budget, this could be a cost-efficient way to have peace of mind and protect your loved ones.

Flexibility: Term life insurance offers flexibility across different life stages, such as tying the knot, carrying a mortgage, or have young children. You can choose a term amount to suit the stage of life you’re at, whether it’s tying the knot, carrying a mortgage, or have young children.

Convert to lifelong coverage: With term life insurance, you can convert an existing policy to a permanent life insurance plan without a medical exam.

How term life premiums are calculated

Determining how much life insurance costs depends on several factors. Together, these affects the cost of term life insurance. Here’s a breakdown of the most common factors below:  

Age and sex

The younger the individual, the lower their insurance premiums, as they’re typically considered to be healthy. Although it would be nice to be young forever, it’s important to note that term life insurance costs in Canada increase with age due to the higher risk of developing health issues.  Another aspect is sex. Women commonly pay lower premiums than men, as they live longer.

Health and lifestyle

If you’re in good health, then term life insurance premiums are more affordable. In contrast, premiums are higher for individuals with chronic health conditions due to the increased risk. Some common health conditions insurance companies assess are diabetes, heart disease, high blood pressure, and cancer.

Your lifestyle and habits may also affect your monthly costs, especially if you enjoy thrill-seeking activities that get your adrenaline pumping. Be aware that high-risk activities such as scuba diving or back country skiing, and motorsport racing could raise your heart rate and premiums.

Smoking status

A major factor in determining term life insurance rates is whether you smoke or vape. According to the Canadian Cancer Society, people who smoke have an increased risk of developing at least 16 types of cancer. Since smokers are more prone to illnesses and death caused by tobacco use, they’re subject to higher premiums than non-smokers for the same type of coverage.

If you have ceased smoking tobacco products for the last 12 months, you could be eligible for a non-smoker rate.

Learn more about what smokers need to know about life insurance.

Coverage amount and term length

The coverage amount and the duration of your policy significantly affect premiums. Term policies offer different rates based on coverage tiers, such as $250,000, $500,000, and $750,000. The higher the coverage amount, the higher the premiums will be, with all other factors being equal. That’s because the insurer assumes greater risk of paying a higher death benefit. Similarly, shorter term lengths, such as 10 years, are less expensive than longer term lengths.

How to calculate your term life insurance needs

Typically, insurance experts recommend that Canadians purchase insurance equal to seven to 10 times their annual income. However, the exact amount will depend on your unique financial situation.

There are a few ways to calculate how much coverage you may need. One is the the DIME Method: Here’s how it works:

  • D for Debt coverage: Add your outstanding loan and credit card balances.

  • I for Income replacement: Multiply your annual income by the number of years your family would need financial assistance, such as 10 or 20 years.

  • M for Mortgage protection: Include the balance of your mortgage, if any.

  • E for Education expenses: If you have children, determine the cost of their post-secondary education, including tuition, textbooks, and accommodations. 

Then, input the numbers above using this formula:

Total coverage = Debt + (Income x Years) + Mortgage + Education

Here’s an example of a family with one child.

  • D: They have $22,000 in credit card debt.

  • I: Household income is $80,000, and they would like 10 years of coverage.

  • M: They own a home, and their mortgage balance is $260,000.

  • E: Have a existing RESP, but anticipate they’ll need an additional      $20,000  in savings.

Total coverage = Debt $22,000 + Income x years ($80,000 x 10) + Mortgage $260,000 + Education $20,000

The grand total: $1,102,000 term life insurance policy.

Another simpler way to get a head start on how much term life insurance coverage you need is to use a free term life insurance quote tool. From there, a licensed broker can help answer any questions you have.

Average cost of term life insurance by age and gender

Here is where we get into the numbers. To follow is the average term life insurance costs by age and gender for a non-smoker who selected a 20-year policy with $500,000 in coverage.

Age

Premium cost for females

Premium cost for males

20

$20.75/month or $230.50/year

$29.57/month or $328.50/year

30

$21.60/month or $240.00/year

$29.97/month or $333.00/year

40

$32.63/month or $362.50/year

$44.10/month or $490.00/year

50

$81.13/month or $901.50/year

$120.82/month or $1,342.50/year

60

$290.16/month or $3,224.00/year

$407.93/month or $4,532.50/year

Premium cost based on RBC Simplified® Term Life Insurance as of February 2026.

Average cost of term life insurance by coverage amount

The following table displays the average term life insurance cost by coverage amount for a 40-year-old individual (non-smoker) who selects a 20-year policy.

Coverage amount

Premium cost for females

Premium cost for males

$100,000

$14.49/month or $161.00/year

$17.55/month or $195.00/year

$250,000

$20.50/month or $227.75/year

$26.91/month or $299.00/year

$500,000

$32.63/month or $362.50/year

$44.10/month or $490.00/year

$750,000

$47.14/month or $523.75/year

$64.35/month or $715.00/year

$1,000,000

$59.13/month or $657.00/year

$81.99/month or $911.00/year

Premium cost based on RBC Simplified® Term Life Insurance as of February 2026.

Average cost of term life insurance for smokers

The table below outlines the average term life insurance cost by coverage amount for smokers with a 20-year policy for $500,000 of coverage.

Age

Premium cost for female smokers

Premium cost for male smokers

20

$34.65/month or $385.00/year

$64.80/month or $720.00/year

30

$49.86/month or $554.00/year

$72.90/month or $810.00/year

40

$104.40/month or $1,160.00/year

$155.52/month or $1,728.00/year

50

$237.02/month or $2,633.50/year

$399.60/month or $4,440.00/year

60

$627.48/month or $6,972.00/year

$1,104.39/month or $12,271.00/year

Premium cost based on RBC Simplified® Term Life Insurance as of February 2026.

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Strategies to get the best term life rates

Here are some strategies to help you secure the best term life insurance rates in Canada:

Improve your health: Adopting healthier lifestyle choices can help boost your chances of qualifying for insurance and getting a better rate.

Quit smoking: Another significant factor that affects how much you’ll pay is nicotine use. If you’re a smoker or use vape products, quitting and then reapplying after a year will help you save.  

Compare quotes: Take the time to shop around to understand the cost of term life insurance. Gather several quotes and compare the coverage amounts. That way you can feel confident in knowing that you’re getting the best rate and the right solution that fits your needs.

Get qualified advice: Consider speaking to a licensed insurance advisor. They can discuss coverage options, answer questions you may have, and determine the best insurance coverage to protect you and your loved ones.

Common myths about term life insurance costs in Canada

Many Canadians delay purchasing term life insurance due to misconceptions about its affordability. Let’s review the top three myths and clarify the facts.

Myth #1: Term life insurance is too expensive 

The reality is, affordable term life insurance is out there, especially if you’re young and healthy. A person in their mid-20s who opts in for a 10-year policy with $100,000 coverage could pay as little as $9.27 per month. The average monthly life insurance cost may cost you less than a monthly streaming service.

Myth #2: You only need life insurance if you have children or a family

No doubt, children are a major factor in the decision to obtain coverage. However, there are multiple scenarios where term life insurance is equally important. If you have dependents such as a spouse or elderly parents, you’re living with a disability or have significant debt such as a mortgage or student loans, then coverage can alleviate financial pressures for your loved ones, should you pass away.

Myth #3: Your employer’s coverage is sufficient

Workplace group insurance is certainly a beneficial perk, however, it’s likely to offer inadequate coverage. Typically, group benefits cap your life insurance to 1 or 2 times your salary. Even if you’re earning $100K a year, is a maximum of $200,000 going to adequately protect you? In addition, coverage ends when your job does. Personal term life insurance coverage can supplement existing employer benefits and it stays with you no matter where you’re employed. 

Make an informed decision about term life insurance

Whether you have debt, dependents, or both, term life insurance is a straightforward choice for individuals and families who wish to safeguard their loved ones should something happen to them. The benefits of term life insurance are it’s affordable, flexible, and coverage is available for 10 to 40 years. Learn more about your options, including how much term life insurance costs, by getting a free quote online or speak to a licensed advisor to learn more.

RBC Life Insurance

Protect Your Loved Ones With Dependable Life Insurance.

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*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

Home > Advice & Learning

What is Accidental Death & Dismemberment (AD&D) Insurance and How Does it Work?

8 Min Read
Tammy Burns

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Accidents don’t send calendar invites. One icy commute, one distracted driver, one equipment failure at work — and life can change fast. When that happens, the emotional toll can be heavy enough. The financial fallout shouldn’t make it worse.
 
That’s where Accidental Death and Dismemberment (AD&D) insurance can help. This type of insurance is designed to pay a benefit if you die or are seriously injured in a covered accident. That payout can help replace lost income, cover medical costs, manage debt, or simply give your family breathing room when they need it most. If others rely on your income or you work in a higher-risk job, it can be a practical layer of protection.
 
Whether you’re considering AD&D as an add-on to your existing life insurance or shopping for a standalone policy, here’s the AD&D meaning, how it works, what it covers, and how to decide if it’s right for you.

Key takeaways

  • AD&D insurance pays a benefit for accidental death or specific severe injuries caused by a covered accident. Traditional life insurance covers death from most causes, including illness, but not injuries.

  • Because AD&D insurance is limited to accidents, premiums are generally lower than life insurance, and no medical exam is required.

  • When combined with life insurance, AD&D insurance may pay benefits from both policies in the case of a covered accidental death and provide support for qualifying non-fatal injuries. 

  • Injury benefits are typically paid according to a schedule and are based on a percentage of your total coverage amount.

  • AD&D may be particularly relevant for people with higher-risk occupations, active lifestyles, or frequent travel.

What is Accidental Death and Dismemberment (AD&D) insurance?

AD&D insurance — sometimes called Personal Accident Insurance — provides a lump-sum payment if you die or suffer specific serious injuries as a result of a covered accident. 

The key word is “accident.” Death or injury caused by illness, disease, or natural causes isn’t covered. That’s what makes AD&D different from life insurance, which generally pays a tax-free benefit for most causes of death, whether accidental or not.

This type of insurance is often included in employer-sponsored group benefits plans, but it can also be purchased as standalone coverage. AD&D insurance can serve as a supplement to an existing life insurance policy.

How does Accidental Death and Dismemberment (AD&D) insurance work? 

With AD&D insurance, you pay a monthly premium as long as your policy remains in force. With RBC Insurance, coverage continues until age 80, and premiums do not increase with age. For eligible RBC clients between the ages of 18 and 69, acceptance is guaranteed. Here’s how it generally works:

  • If you die from a covered accident, the policy pays a tax-free benefit to your beneficiaries. 

  • If you suffer a qualifying injury, you may receive a full or partial payout, depending on the policy’s terms. 

  • Coverage is available as an individual policy or as a joint policy that includes your spouse or partner.

  • In most cases, the covered death or injury must occur within 365 days of the accident. 

  • To initiate a claim, your beneficiary (or you, in the case of injury) must show proof of death or medical documentation within the required timeframe (typically 90 days). 

Different plans may offer additional benefits. For example, RBC Insurance’s policy includes:

  • A Child Care Benefit to help cover child care expenses

  • An Education Benefit to assist with post-secondary tuition costs

  • A Spousal Job Training Benefit to help a partner enroll in an accredited program and build skills for the job market

These features are designed to support families not just immediately after an accident, but as they adjust in the months that follow.

What is covered under AD&D insurance?

AD&D insurance provides more limited coverage than life insurance. It pays benefits only for death or specific serious injuries caused directly by a covered accident. 

Accidental death

An accidental death is sudden, unforeseen, and caused directly by an external event — independent of illness or underlying medical conditions. 

For example, a car crash or drowning during normal circumstances would generally be considered accidental. However, death or injury that occur while committing a criminal act or engaging in excluded high-risk activities may not be covered. Coverage always depends on the policy’s terms.

If you pass away due to a covered accident, your beneficiaries receive a tax-free lump-sum payment that can help cover immediate expenses — like funeral costs, outstanding debts, child care, household bills, and more.

Dismemberment and injury 

A defining feature of AD&D insurance is that it also provides benefits for certain severe injuries. 

“Loss” can refer to the actual severance of a limb. “Loss of use” generally refers to the permanent and irreversible loss of function. 

The specific definitions are outlined in your policy, but here’s what’s typically covered:

  • Loss of limbs, fingers, or toes

  • Loss of sight, speech, or hearing

  • Paralysis or loss of bodily function

  • Severe burns

For injuries, the payout amount is usually percentage-based. For example, while an accidental death benefit may pay 100% of the policy amount, an injury payout may be 25%, 50%, or another percentage, depending on the severity of the injury. Your policy generally has a benefit schedule that outlines the payout associated with each covered injury.

While no amount of money can undo the impact of a serious accident, the benefit can help offset medical and rehabilitation costs, lost income, home modifications, and other necessary adjustments.

What is not covered under AD&D insurance?

Because AD&D insurance is limited to accidents, certain situations are excluded, such as:

  • Death or injury caused by sickness or disease

  • Medical or surgical treatment, unless directly required due to a covered accident

  • Participation in certain high-risk activities

  • Drug or alcohol impairment, depending on the circumstances

  • Intentional self-inflicted injury or suicide

  • Committing or attempting a criminal act

  • War or insurrection

  • Certain acts of terrorism

Always review your policy’s full terms and conditions before purchasing coverage.

What are the benefits of AD&D insurance?

Purchasing AD&D insurance — either as a standalone policy or as a complement to your life insurance — can provide key advantages, including:

  • Double indemnity: Having both life insurance and AD&D coverage (or an accidental death rider) gives you double the coverage. Should you pass away due to a covered accident, your beneficiaries may receive benefits from both policies. 

  • Financial support: The tax-free benefit can be used to cover any incurred costs immediately following an accident.  

  • Cost-effective: Because AD&D coverage is limited to accidents, premiums are typically lower than those for life insurance. 

  • No medical exam: With RBC AD&D insurance, acceptance is guaranteed for existing customers who are Canadian residents aged 18 to 69. 

  • Tax-free benefit: The death benefit that your beneficiaries receive is exempt from income tax.

Who should get AD&D insurance?

AD&D insurance isn’t necessary for everyone, but it can be a practical addition to a financial plan. It may be worth considering if you:

  • Work in a higher-risk occupation

  • Participate in activities that increase your risk of accidental injury or death

  • Frequently travel 

  • Don’t qualify for life insurance

  • Want additional financial coverage beyond life insurance

Why you might need AD&D and life insurance 

Life insurance pays a benefit if you pass away. It does not cover non-fatal injuries. AD&D insurance can help fill that gap. If you’re seriously injured in a covered accident, you may receive a benefit based on the severity of your injury.

AD&D isn’t a replacement for life insurance. Combined, they can create a powerful financial safety net for you and your loved ones.

Protect yourself and your loved ones with AD&D insurance  

AD&D insurance offers affordable, targeted coverage if a serious accident changes your life in an instant. If you work in a higher-risk occupation, have dependents who rely on your income, or simply want added security for the unexpected, it can be a valuable add-on to an existing life insurance policy — or a solid standalone option if you can’t get regular life insurance.To learn whether AD&D insurance fits your needs, speak with an RBC licensed insurance advisor who can walk you through your options and answer your questions.

RBC Life Insurance

Protect Your Loved Ones With Dependable Life Insurance.

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*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

Home > Advice & Learning

What is Insurance Underwriting and How Does it Work? A Guide

13 Min Read
Lisa Jackson
What is insurance underwriting

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Back in the day, applying for life insurance meant filling out forms and waiting weeks for an answer. Today, technology has changed that. Now, life insurance applications can be approved quickly — sometimes even the same day. In other cases, there may be a short period of review.

But that doesn’t mean your application is stuck in a queue. Behind the scenes, underwriters are reviewing your information to understand your situation and assess risk. From the outside, it can feel mysterious, but the process is careful and methodical, designed to make decisions consistent and pricing fair.

“Underwriting is how we decide whether we can accept someone for insurance and what their premium will be,” says Kristine Fogarty, Chief Underwriting Officer at RBC Insurance. “We’re looking at health, lifestyle, and other factors to make sure coverage is priced fairly and works the way it should.”

This guide breaks down what is underwriting in insurance, how the underwriting process works, and what you can expect at each step.

Key takeaways

  • Underwriting is how insurers assess risk. It’s the process used to decide whether you’re eligible for life insurance, how much coverage you can get, and what you’ll pay.

  • Technology has sped up many approvals. Some life insurance applications are approved quickly — sometimes even the same day — while more complex cases may require additional review.

  • Underwriters look at the full picture. Age, sex, health history, lifestyle habits, occupation, financial information, and existing coverage all help determine risk and pricing.

  • A “no” isn’t always permanent. Applications can be postponed or declined for timing or stability reasons, but other insurers or product options may still be available.

  • The goal of underwriting is fairness and long-term stability. Careful underwriting helps keep life insurance premiums reasonable and ensures coverage works as intended when it’s needed most.

What is insurance underwriting and why does it matter?

Underwriting is the process insurers use to assess risk when you apply for life insurance, or other types of insurance products. In practical terms, it determines whether you’re eligible for coverage, how much coverage you can get, and what you’ll pay.

For life insurance, underwriters evaluate factors such as your health, lifestyle, age, and occupation to estimate the likelihood of a claim and price coverage accordingly. However, the process isn’t the same as buying a product off a shelf.

“It’s not like buying a coffee maker in a store, where the same model is sold to anyone,” says Fogarty. “Underwriters look at whether the product is suitable for you and how it should be priced.”

So why does underwriting matter? Because it helps keep life insurance premiums fair and stable. When risk is assessed carefully and pricing reflects individual circumstances, premiums are more likely to be affordable for everyone.

Underwriting also supports an efficient claims process. Reviewing and accurately disclosing your information upfront helps make your claims process go smoother later on.

“You want to make sure what’s disclosed matches your records — no surprises,” says Fogarty. Underwriting isn’t about creating obstacles. It’s about getting the details right, so life insurance does what it’s meant to do — provide protection when it’s needed most.

What does a life insurance underwriter do?

A life insurance underwriter reviews applications to determine whether coverage can be offered — and under what terms.

In practice, that may involve:

  • Approving coverage as applied for

  • Adjusting pricing based on risk

  • Requesting additional information

  • Postponing or declining coverage

At its core, underwriters assess risk — and the job requires careful analysis, not simply ticking boxes on a checklist.

“An underwriter must have very strong medical knowledge,” says Fogarty. “If you have a medical impairment, we may need to delve deeper. What type of medication are you taking? Do you have complications? Is the condition stable?”

Decisions are based on facts. Underwriters rely on medical guidelines and actuarial data built on long-term health trends. When needed, they may request medical records before making a final decision.

“As Chief Underwriting Officer, my team sets the policies and practices for people who apply for life insurance,” Fogarty explains. “These guidelines help ensure decisions are consistent, premiums are set appropriately, and consumers are treated fairly.”

What factors do underwriters consider?

When you apply for life insurance, underwriters don’t look at just one thing. They examine at a combination of personal, medical, lifestyle, and financial factors to assess risk and set pricing fairly.

Here’s what typically comes into play:

Age

As we age, the likelihood of health events increases — and premiums generally reflect that.

Sex

On average, women live longer than men. Because life expectancy data influences pricing, females often pay lower premiums for the same coverage.

Overall health

Your current health matters. So does your medical history. Underwriters consider conditions, medications, weight, blood pressure, cholesterol levels, and how well issues are managed.

“We ask you medical questions so we can understand your overall health,” says Fogarty. “Is there something that requires a higher premium — a slight surcharge — or additional review?”

In general, Canadians in good health tend to qualify for lower premiums than those with significant or unstable medical conditions. But having a health condition doesn’t automatically mean you won’t qualify.

“Not everyone’s in perfect health,” says Fogarty. “People do have health conditions. It depends on what it is and how it’s managed.”

Family medical history

Certain illnesses can run in families. A history of conditions such as heart disease or cancer in close relatives may be considered.

Smoking, vaping, tobacco use, or substance use

Tobacco use significantly affects long-term health risk. “Actuaries price smokers at a higher rate than non-smokers,” says Fogarty. Some insurers may offer lower premiums after a period of being nicotine-free (often 12 months). However, nicotine products, including many cessation aids, may still count as tobacco use.

Alcohol or substance use — including frequency and related health impacts — may also influence an assessment.

Learn more: Life insurance for smokers

Hobbies/activities

Extreme recreational activities, like some types of backcountry skiing or bungee jumping, can also factor into underwriting decisions. “We ask about extreme sports,” Fogarty says. “It doesn’t mean you’re uninsurable, but we need to understand the level of risk.”

Policy type and coverage amount

The type of policy — term or permanent — and the amount of coverage can also affect pricing. “It depends on the type of product you apply for and the face amount,” Fogarty notes.

Term life insurance generally costs less because it covers a set period. Permanent life insurance provides lifelong coverage and typically costs more.

Financial information

Underwriters typically ask about your income and overall financial picture. The goal isn’t to pry — it’s to make sure the amount of insurance makes sense based on your circumstances.  “The average-sized policy is approved with limited financial information,” says Fogarty. “For example, we’ll usually ask about your income and net worth.” For larger amounts of life insurance, underwriters may take a closer look at your financial picture.

Existing life insurance

Underwriters also look at any coverage you already have. If you’re applying for additional coverage, they want to understand how it all fits together.

Learn more: What Affects Your Life Insurance Premiums?

How does the process of underwriting work?

Once you hit submit, your application moves into underwriting. From there, the process typically follows a few key steps.

“The process depends on the type of policy, the face amount, and the complexity of the case,” says Fogarty. “But in today’s world, more and more applications are being approved at the point of sale.”

For individuals with more complex health history, here’s a rough roadmap of a typical process:

Step 1: Initial review

An underwriter reviews your application to see whether there’s enough information to make a fast decision. That includes your health and lifestyle answers, coverage amount requested, and any other relevant details.

If the application is straightforward, a decision may be made quickly — sometimes even the same day. “For many people with straightforward medical histories, applications can move through quickly,” says Fogarty. AI-backed models can also help to underwrite those cases. “That frees up our underwriters to focus on the cases that need a closer look,” she adds.

Step 2: Follow-up as needed

If clarification is required, you may be asked to provide additional information. “Be open and honest on your application,” says Fogarty. “If there’s a complex medical history, the underwriter may access copies of your records from your doctor.”

Step 3: Medical evidence when required

Depending on your age and the coverage amount, you may need to complete a medical exam or provide lab samples.

This can include:

  • A paramedical exam to collect height, weight, blood pressure, and pulse

  • A blood test

  • A urine sample

  • A health interview conducted by phone

Not every applicant will need medical testing. Many policies today can be approved without fluids, especially at certain coverage levels.

“There’s a lot your blood and urine can tell us, but we also have other ways to gather the information we need. At RBC Insurance, we’re working to avoid taking these body fluids, so more people can buy life insurance without the process feeling as intrusive,” says Fogarty.

Step 4: Risk assessment and decision

Once all required information is gathered, the underwriter evaluates the overall risk and determines:

  • Whether coverage is approved

  • The amount of coverage offered

  • The premium and terms

In some cases — particularly for higher coverage amounts or unusual risks — an application may require additional internal review before a final decision is made.

What information is required for underwriting?

Depending on the policy and coverage amount, you. will be asked to provide:

  • A completed health and lifestyle questionnaire

  • Information about existing life insurance policies

  • The names and relationships of your beneficiaries

Depending on the coverage amount, or if you are purchasing life insurance for a business, you may also be asked to provide financial statements or tax documents.

Not every applicant will need to provide all of these. Requirements vary based on your age, health history, and the amount of coverage requested.

What are the outcomes of underwriting for life insurance?

Once underwriting is complete, you’ll get a decision. There are four main possibilities — and none of them are personal. They’re simply based on how your health and risk factors fit within the insurer’s guidelines.

Here’s what each one generally means:

Approved as standard

This is the straightforward outcome: You’re approved at the regular premium rate. In underwriting terms, “standard” means your overall risk is considered typical for someone of your age and sex, based on long-term data. Generally, you get the coverage you applied for at the premium quoted.

“Standard just means that you have no health issues that would warrant a surcharge, and that you’re expected to live as long as most people your age without an impairment,” says Fogarty.

Approved with a rating

You’re approved, but at a higher premium. This typically happens when there’s a health condition or risk factor that increases the likelihood of an early claim. The insurer adjusts the price to reflect that.

Postponed

Based on the available information, this means the insurer can’t make a final decision right now. Often, it’s about timing. Maybe you’ve recently started a new medication, are in the middle of treatment, or are waiting on test results. In many cases, you can reapply once things are more stable. “A postponement isn’t an outright ‘no,’” says Fogarty. “It’s usually a ‘not right now.’”

Declined

A decline means the insurer can’t offer coverage under its current guidelines. That can be disappointing, but it’s not always the end of the road.

“Just because one company thinks you’re uninsurable, there are many insurers out there with many different approaches, risk tolerances, and products,” says Fogarty.

In some cases, you may qualify elsewhere or be eligible to apply again in the future if your situation changes. “What they’re looking for is stability,” says Fogarty. “If you’re not insurable today, ask when you might be reconsidered. It could be a timing issue.”

You may also want to explore alternative options. For example, RBC Insurance offers Guaranteed Acceptance Life Insurance, which does not require a medical exam or health questionnaire. Coverage amounts are generally lower and premiums higher than fully underwritten policies, but it can provide a starting point for protection.

Take the next step

Underwriting might sound technical, but it’s really about one thing: making sure life insurance does what it’s supposed to do when it matters most.

If you’ve been putting off applying because it feels complicated or invasive, you’re not alone. But in many cases, it’s more straightforward and less expensive than people expect. “For some people, you might sit with an advisor and know the same day that you’ve been approved,” says Kristine Fogarty.

And if the answer isn’t what you hoped for? That doesn’t always mean the door is closed. Sometimes, it just takes a conversation.  “A good advisor is worth their weight in gold,” she says. “They can guide you through the paperwork and questions.”

For many families, the monthly cost of term life insurance can be less than a streaming subscription or a few takeout dinners. But the protection it provides can make an enormous difference if something unexpected happens.

“People think insurance is more expensive than it is,” says Fogarty. “Even with minor health issues — what do you have to lose by applying? Life insurance gives peace of mind.” Talk to a licensed RBC Insurance advisor to understand your options. Because at the end of the day, this isn’t about paperwork — it’s about protecting the people who depend on you.

FAQs about insurance underwriting

Is underwriting always required for life insurance?

Yes. Every life insurance application goes through underwriting in some form. In many cases, automated tools and predictive models now support the review process, which can speed up decisions for straightforward applications. More complex cases may still require additional medical information or documentation.

How long does underwriting take for insurance?

It depends on the policy, coverage amount, and medical history. Some applications are approved instantly. Others may take longer if additional records are required.

What should I do if I’m denied insurance coverage?

A decline isn’t always final. It may be related to timing, a recent diagnosis, or a condition that needs to stabilize. And a decision from one insurer doesn’t necessarily mean you won’t qualify elsewhere — different companies have different guidelines, risk tolerances, and products. You can also explore options, such as Guaranteed Acceptance Life Insurance, which does not require a medical exam or health questionnaire and generally provides automatic acceptance.

RBC Life Insurance

Protect Your Loved Ones With Dependable Life Insurance.

Learn More

*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

Home > Advice & Learning

What Homeowners Need to Know About Ice Damming

5 Min Read
Amanda Lee

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Canada is known as the Great White North for a reason. Winters can be long and unpredictable. Above zero temperatures one day and biting cold the next. With it brings a potential problem for Canadian homeowners: ice damming. 

Ice damming—a build-up of ice on the exterior of your home—is more than a minor inconvenience. It can wreak serious, and costly, havoc on your home and its contents. Which is why it’s important for homeowners to recognize if you have an ice dam, and how to protect your property from the dangers of ice damming during the winter thaw. 

Key takeaways

  • An ice dam is a build-up of snow and ice on the edge of a roof or eavestrough. 

  • Ice dams can be identified by the presence of large, thick icicles, ridges of ice along the eaves, and water stains or leaks on ceilings and exterior walls.

  • Ice dams can damage your property’s roof, eavestrough, cause water damage inside the home, and in severe cases cause structural collapse of outbuildings. 

  • To prevent ice damming, monitor snow build up on your roof, regularly check that your eavestroughs and drains are clear of blockages, ensure your attic is well insulated, and safely remove snow after a heavy snowstorm.

What is an ice dam? 

An ice dam is a buildup of ice that forms along the edge of a roof or in eavestroughs when melting snow cannot drain properly. It then pools and refreezes. This commonly occurs during cycles of warming and freezing, especially when there is improper attic insulation or ventilation, snow accumulation, or your eavestroughs are blocked from debris. 

How can ice damming be harmful to your home?

As the ice accumulates, it can prevent additional melted snow from draining. The trapped water could then cause damage to the home in multiple ways:

  • Damage to eavestroughs, soffits, shingles, and downspouts.

  • Water damage inside the home, such as stains on ceilings or exterior walls, wet insulation, mold or mildew, or moisture on the underside of roof decking.

  • In severe cases, structural collapse of outbuildings. e.g., sheds, porches, or sunrooms due to a weakened roof structure from ice and snow. 

Read more: How to protect your home in the winter.

How to tell if you have an ice dam 

 Unlike small icicles that can form as snow begins to melt, ice dams are larger and should be more obvious. Some of the signs to look for include:

  • Long, thick icicles than hanging from your roof or gutters, especially if it’s on a part of your house that isn’t exposed to direct sunlight. 

  • Visible ice filling or overflowing from gutters and downspouts, preventing proper water drainage.

  • Sagging or collapsed ice-filled eavestroughs. 

  • Snow on the upper part of the roof melts while the lower edge remains covered. 

  • Moisture on the ceiling, peeling paint, or damaged or wet insulation, especially near exterior walls or the upper floor. 

What happens when the snow and ice melts?

As the temperature increases, snow and ice can melt and cause additional water damage or flooding in your home. However, you can help prevent damage by: 

  • Clearing any blockages from your drains.

  • Seal any cracks or openings in your home.

  • Monitor the water levels in your sump pumps. 

How to prevent and manage ice dams

Here’s how proactive homeowners can help prevent ice damming from damaging your property:

  • Monitor snow buildup on your roof and remove snow from the edge of your roof after heavy storms with a roof rake if it’s safe to do so. Otherwise, consider hiring professional instead.  

  • Regularly check to ensure that your eavestrough, downspout and drains are clear of debris or blockages. 

  • Install gutter guards to prevent debris from building up. 

  • Ensure your attic is well insulated to keep the warmth inside your home, helping to reduce melting on the roof. 

  • Identify and seal air leaks in your attic, around plumbing vents, chimney, or light fixtures.

  • For severe buildup, contact a professional to safely remove ice dams.

Will my home insurance company cover ice dams?

Most home insurance companies in Canada cover sudden or accidental water damage caused by ice damming, such as a leaking roof or water damage inside your property. However, insurance policies vary, and it’s important to understand the terms of your home insurance coverage. 
 
As a homeowner, you’re expected to care for your property, such as maintaining roof and gutters, which helps mitigate damages that could result in a larger loss. If you have damage caused from an ice dam, contact your insurer right away. Otherwise, it can lead to more serious damage to your home. 

Read more: What personal property is covered in my home?

Protect your home from ice and snow

By taking action now to protect your property from ice damming, you can reduce the likelihood of damage to your property. Make sure you understand what your policy covers and does not, and if needed update your policy coverage and limits to ensure you have the right coverage for your home. For more information about how to make a claim online or by telephone, visit our home and property claims site. 

Great Rates and Expert Advice on Home Insurance

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*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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Term vs. Universal Life Insurance in Canada: What’s the Difference?

11 Min Read
Joshua Bonnici
Term vs Universal Life Insurance

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Life insurance is one of those things most Canadians know they should have — but fewer feel confident explaining. And once you start comparing term vs. universal life insurance, it can feel less like a financial decision and more like a pop quiz you didn’t study for. Both are legitimate life insurance products, both can protect your family, and both get recommended a lot. The catch? These products are built for very different jobs.

This article breaks down how term and universal life insurance work in Canada, how they differ in cost, flexibility, and purpose, and the situations where each one can make the most sense.

Key takeaways

  • Term life insurance and universal life insurance serve different purposes. Term life is designed for affordable, time-limited protection, while universal life is meant for lifelong coverage with added flexibility and tax-advantaged features.

  • Term life insurance is often the simplest and most affordable way to protect your family during key financial years, like while you have a mortgage or a young family to support.

  • Universal life insurance is generally more complex, but also more flexible. It can include a savings component that grows on a tax-deferred basis and may support long-term goals like estate planning or business succession.

  • The right choice depends on your goals, budget, how long you need coverage, and how involved you want to be in managing the policy.

  • Your needs can change over time. Many Canadians start with term life insurance and later consider permanent options as their financial situation evolves.

How universal life insurance works

Universal life insurance is a type of permanent life insurance, designed for Canadians who want lifelong coverage that can help protect their income during their working years, leave behind a legacy, and build additional value for their estate. When you pass away, it pays a tax-free death benefit to your beneficiaries. 

Universal life insurance also includes a tax-advantaged savings component that can grow inside the policy over time. How this works is a portion of what you pay goes toward the cost of insurance, which is the minimum amount needed to keep the policy in force. If you choose to pay more than the minimum amount, the extra dollars can go into a savings portion that may grow on a tax-deferred basis, as long as it stays inside the policy.

Depending on the insurer, you can usually choose how that savings portion is invested and how your premiums are paid. For example, with universal life insurance, you can select from different interest options and choose between plans with or without bonus interest. That built-in flexibility can be helpful if your income, priorities, or long-term plans change over time.

Learn more about permanent life insurance.

Key features of universal life insurance

  • Lifetime coverage: Coverage is designed to last your entire life, rather than a set term.

  • Tax-free death benefit: Your beneficiaries will receive a lump sum, tax-free benefit if you pass away.

  • Premiums: You’re not locked into one fixed payment for a term. As long as you stay within required minimums and maximums, you can adjust how much you contribute and how often you pay (e.g., monthly or annually). Paying more than the minimum can also help build value inside the policy over time.

  • Broad range of investments: Depending on the insurer, you can choose from different interest or market-linked options and adjust those choices over time if your comfort level or goals change.

  • Tax-deferred growth: Growth is not taxed while it remains in the policy.

  • Access to funds. If savings have built up, you can typically access the cash value through withdrawals or policy loans. The policy can also be surrendered for its cash value, although accessing funds may affect coverage and taxes.

  • Built-in flexibility: Premium amounts, payment timing, and investment choices can often be tweaked as your income or priorities change.

  • Living benefits: Some policies may offer living benefits, such as a compassionate advance if you become terminally ill or a disability benefit paid from the policy’s accumulated value.

  • Riders: Extra coverage can often be added to suit your needs, such as a children’s term rider, accidental death benefits, or supplemental term insurance.

How term life insurance works

Term life insurance is designed to be simple and affordable. It provides coverage for a set term (e.g., 10, 20, 40 years), and if you pass away during that time, your beneficiaries receive a tax-free death benefit.

You pay a monthly or annual premium for the length of the term you choose. If the term ends and you’re still alive, coverage typically ends or can be renewed at a higher cost, depending on the policy.

Term life insurance is most often used for income replacement and temporary protection, such as covering a mortgage or supporting your family while children are still financially dependent. It doesn’t include a savings or investment component, so there’s no cash value — premiums go entirely toward coverage, which is why it’s often a more affordable option.

That said, some insurers like RBC Insurance may allow you to convert all or part of your term life insurance policy into a permanent policy later.

Learn more about term life insurance and how it works. 

Key features of term life insurance

  • Affordable coverage: With RBC Insurance, rates can start at less than $13/month, depending on your age, health, coverage amount, and term length.

  • Tax-free death benefit. If you pass away during the term, your beneficiaries receive a tax-free lump sum payment. With RBC Insurance, the amount generally ranges from $50,000 up to $25 million.

  • Set terms and premiums: Coverage lasts for a defined period — commonly between 10 and 40 years — with premiums that stay the same for the length of the term. Policies can often be renewed at the end of the term, typically at a higher cost.

  • Flexibility: Term life insurance lets you match coverage to specific needs, such as replacing income or covering a mortgage. Many policies also allow you to add riders or convert some or all of your coverage to permanent life insurance later on.

  • Simple by design: There’s no cash value and no investing — just straightforward protection for the years you need it most.

Difference between universal life vs. term life insurance

Universal life insurance and term life insurance both provide protection — they just go about it in different ways. Here’s a simple, side-by-side look at how they compare.

Feature

Universal Life Insurance

Term Life Insurance

Purpose

Lifelong coverage, with the option to build savings for long-term or estate planning.

Temporary coverage to protect income and family expenses.

Premiums

Flexible. You can adjust payments within limits.

Fixed. Payment stays the same for the entire term.

Duration

Designed to last your whole life.

Coverage lasts for a set term, like 10, 20, or 40 years.

Complexity

More hands-on. Includes choices around funding and investments and may need monitoring over time.

Simple. Fewer decisions and little ongoing involvement.

Death benefit

Pays a death benefit to your beneficiaries. Amount depends on how the policy is structured.

Pays a set death benefit if you pass away during the term.

Savings component

Yes. Part of the policy can grow inside it on a tax-deferred basis.

No.

Access to funds

Yes, possible in some cases (loans or withdrawals from the policy’s value).

No.

Is term life insurance better than universal life insurance?

The short answer: neither is term life or universal life insurance “better” across the board. Term life insurance and universal life insurance are built for different goals, different timelines, and different comfort levels.

The right choice depends on what you’re trying to protect, how long you need coverage, and whether you’re looking for straightforward protection or a longer-term planning tool. For many Canadians, the “better” option is simply the one that fits their life right now — and that can change over time.

Why universal life insurance might be right for you

Universal life insurance can make sense if you’re looking for more than just basic protection. It’s often a better fit for people who:

  • Want lifelong insurance coverage that doesn’t expire.

  • Are interested in tax-advantaged growth inside a life insurance policy.

  • Have a higher income and may already be maximizing other registered savings options.

  • Are thinking about estate planning, leaving a legacy, or covering future tax obligations.

  • Own a business and need help with business succession, shareholder planning, or key person protection.

  • Are comfortable with a policy that requires some ongoing attention and decision-making.

  • Like the idea of having a built-in cash value you can leverage if your plans change or a new opportunity arises.

In short, universal life insurance tends to suit people who see life insurance as part of a broader financial or estate plan — not just a safety net.

Why term life insurance might be right for you

Term life insurance is often the right choice if your goal is clear, time-bound protection. It’s commonly a good fit for people who:

  • Want a simple, affordable way to protect their family.

  • Need coverage during a specific age and stage, such as while paying a mortgage or raising children.

  • Are focused on income replacement, not building savings inside an insurance policy.

  • Prefer something that’s easy to understand and easy to manage.

  • Want the flexibility to reassess their needs later or convert to permanent insurance down the road.

Term life insurance may work well when your biggest financial responsibilities are temporary, and when keeping costs predictable matters. If you’re leaning toward term life insurance, you don’t need to guess what it might cost. You can get a personalized quote online in just a few minutes with RBC Insurance’s term life insurance quote tool.

Get the right life insurance policy for your needs

At the end of the day, choosing between term life insurance and universal life insurance isn’t about picking the “best” product — it’s about choosing what works for your life. Term life insurance may make sense if you want affordable, no-frills coverage for a set period. Universal life insurance can be a better fit if you’re thinking long-term and want flexibility around estate or tax planning. If you’ve got questions, a licensed insurance advisor can help. A quick conversation can go a long way in clarifying your options and making sure the coverage you choose matches your goals and your budget.

FAQs about term vs. universal life insurance

What are alternatives to purchasing universal or term life insurance?

Term and universal life insurance aren’t the only options available to Canadians. Other types include whole life insurance (lifelong coverage with built-in savings), guaranteed life insurance (often no medical exam, but generally higher costs and lower coverage), and term-to-100 life insurance (coverage to age 100 with fixed premiums and a tax-free death benefit). Each option serves a different need and budget.

What is the difference between term insurance, whole life insurance, and universal life insurance?

The main differences between term insurance, whole life insurance, and universal life insurance come down to how long coverage lasts and whether there’s a savings component.

  • Term life insurance covers you for a set period and focuses on affordability.

  • Whole life insurance provides lifelong coverage with guaranteed premiums and built-in savings.

  • Universal life insurance also offers lifelong coverage, but with more flexibility around premiums and how savings are managed.

Generally, all three pay a tax-free death benefit but are designed for different goals.

Can I switch from term life insurance to permanent life insurance?

In many cases, yes, you can switch from term life to permanent life insurance. Some term life policies allow you to convert part or all of your coverage to permanent life insurance (such as whole or universal life). Conversion options and timelines vary by policy, so it’s a good idea to review the details or speak with a licensed insurance advisor.

RBC Life Insurance

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*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.