Mind the Gap: Understanding Canada’s Life Insurance Coverage Challenges

Introduction

Life insurance in Canada is at a crossroads.  Although life insurance is generally a critical component in most consumers’ financial planning, current research reveals significant protection gaps across Canada’s population. The Canadian Insurance Barometer Study by LIMRA and industry nonprofit Life Happens provides significant insights into the state of life insurance coverage across the country, revealing progress and concerning disparities among different generations.  In this blog, we’ll analyze the current landscape and explore how targeted financial literacy initiatives can help insurers close coverage gaps, drive demand, and better engage today’s Canadian life insurance buyers.

The Current State of Life Insurance in Canada

According to the LIMRA study, 57% of Canadians report having some form of life insurance coverage. While this represents a majority, it also highlights that a significant portion of the population lacks this fundamental financial safety net. More concerning is that 30% of Canadian adults—approximately 8.4 million people—are living with a life insurance need-gap, meaning they either have no coverage or insufficient coverage for their circumstances This creates an exceptional opportunity for advisors to fill this need and keep Canadians protected across life events. The study also reveals interesting demographic patterns in life insurance coverage gaps. There’s a notable gender divide, with 32% of women facing coverage shortfall compared with 28% of men. In terms of generations, Gen Z shows the highest vulnerability at 44%, while Baby Boomers are the most protected with only 21% lacking adequate coverage. Income also plays a significant role, with households earning under $50,000 showing the highest vulnerability at 38%. Overall, these statistics paint a picture of who might be most at risk in the event of an unexpected loss of a primary wage earner and underscore the importance of guiding the underinsured or uninsured on the value of life insurance

Coverage Barriers

The study data begs an important question: why aren’t more Canadians adequately insured? The study identified three primary barriers. First, many Canadians believe life insurance is more expensive than it actually is, with over one-third of respondents estimating the price at more than three times the true cost. Second, competing financial priorities create challenges. Third, simple procrastination remains a significant obstacle, with 41% of respondents citing other financial needs and 31% specifically mentioning emergency fund savings as a concern.

The financial fragility revealed by the study is further concerning: 42% of Canadians admit they’re not financially secure enough to weather the death of a primary wage earner. Of those, 1 in 10 say they would feel financial hardship within just one week of such a loss, and 42% wouldn’t make it past one month. This contrasts sharply with the peace of mind that proper coverage provides, as 57% of insured Canadians with financial dependents report feeling financially secure, compared with just 44% of those without insurance.

The Digital Insurance Consumer

The study further reveals a significant shift in how Canadians approach purchasing life insurance, with 82% using the internet at some point during their buying journey. Nearly half research online, but prefer to buy in person with an advisor, while about a quarter research online but purchase through other channels like phone, mail, or virtual meetings. Only 13% complete both research and purchase entirely online through the direct-to-consumer channel. This highlights the growing importance of digital resources and tools in the life insurance market for both advisors and customers, even when the final transaction occurs through traditional channels.

The Final Word

With millions of Canadians financially vulnerable due to insufficient life insurance coverage, greater awareness and education are paramount. Insurers and advisors can lead the way in addressing this need to attract new generation of customers. Increasing digital touchpoints could be key to helping more Canadians understand the true cost and value of life insurance. For those who have been putting off this important financial decision, now is the time to reconsider as you go progress through different life stages. As Canadian consumers and those worldwide navigate economic uncertainty, appropriate life insurance coverage becomes even more critical to ensure security and peace of mind, for themselves and for loved ones who matter most.