Workplace life insurance offers a false sense of security for many Canadians, according to Jeffrey Talor, managing director, life & sickness insurance, at CanWise. Most group plans top out well below what an average mortgage actually requires, and the coverage itself often disappears at precisely the moment people need it most.
"The average policy right now in Canada is $550,000, depending on where you're in Canada," Talor said. Most employer-provided group life plans, by contrast, sit somewhere between $100,000 and $300,000 in face value. In a market like British Columbia, where Talor is based, that gap becomes stark quickly.
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"I'm in BC, the mortgage can be $1 million, and $300.000 won't buy me anything," Talor said. He described workplace coverage as "bonus insurance," useful to have but never something to actually rely on as a primary safety net.
That gap becomes more serious later in life, according to Talor, since most group coverage disappears entirely at retirement, typically age 65 in Canada, right as other financial pressures start to build.
"Everybody has to get off the bus at 65. Unfortunately, at 65, you're not the healthiest version of yourself." He said many clients only start thinking seriously about life insurance once they've already aged out of their workplace coverage, often prompted by new concerns: adult children asking for financial help, estate taxes that will apply to their spouse or children after they die, or the rising costs that tend to come with aging itself.
Talor pointed to the tax consequences that hit a surviving spouse or children after someone dies, and said life insurance is one of the more effective ways to offset that burden. The problem, he said, is that many people spend their entire working lives relying on workplace coverage without ever addressing what happens once that coverage ends.
There is a safeguard built into most group plans for people who lose their coverage, whether through layoffs, resignations, or a company closing, according to Talor, though few people are aware of it or use it correctly. The vast majority of carriers, he said, give departing employees a 60-day window to convert their group coverage into an individual plan with no medical exam required.
That window matters because individual applications are typically underwritten based on health, Talor said. An insurer might still offer coverage to someone with a preexisting condition like diabetes, but exclude anything tied to that condition, such as diabetes medication, from the policy. Converting an existing group policy sidesteps that scrutiny entirely, provided the person acts in time.
Even for those who do convert in time, Talor said there's a lesser-known catch specific to converted life insurance: unlike the stable, predictable premiums people can get through a fresh individual application, converted policies are typically priced on what's known as annual renewable term, meaning the cost rises every single year.
"That means you could convert it and keep it, but every year the cost would change," Talor said. He said clients often don't notice the structure until years later, when a premium increase prompts them to actually read the fine print.
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That design isn't accidental, according to Talor. Because converted policyholders avoid medical underwriting, insurers end up carrying an unknown, and potentially higher, risk on those policies compared to applicants who've been medically tested. Rising premiums, he said, function as a quiet incentive to push people back toward applying individually instead.
"The honest truth is they don't want you to keep that plan," Talor said. "They prefer you applying individually because when you apply individually, they have to test you. These plans are untested, so they're assuming that the people are not in good shape. The only way to get them to cancel is to raise the cost every year." Insurers can't cancel a converted policy outright, he said, but a steadily climbing bill tends to accomplish the same thing over time.
