Half of Canadians have the wrong life insurance — here's how to know if you're one of them

New data on how Canadians are buying term life insurance reveals troubling gaps at the worst possible time. Coverage amounts are stagnating at $500,000 — regardless of income, debt or family size, while mental health disclosures are rising among younger applicants (1). And a quiet nicotine habit among Gen Z could double or even triple premiums, locking in higher costs for decades (2).

If you haven’t reviewed your life insurance policy recently, this isn’t a gentle nudge. It’s a stop-what-you’re-doing moment.

A new market snapshot from PolicyMe, based on more than 18,000 term life insurance customer interactions in the fourth quarter of 2025, suggests Canadians are defaulting to coverage amounts that may not reflect real-life risks or rising living costs (3). As underwriting tightens and premiums adjust to disclosed health and lifestyle factors, the window to secure affordable coverage may be closing faster than many realize.

Life insurance isn’t something you fix in a crisis. It’s something you fix before one.

The $500K problem: Popular doesn't mean right

Across every age group and income bracket, $500,000 is the most commonly selected term life insurance coverage amount in Canada. For young buyers aged 18 to 29, it's paired most often with a 30-year term. For those aged 30 to 44 — the peak mortgage and child-rearing years — it's the same $500K, same 30 years (4).

As the report notes (5), for many Canadians $500,000 'hits the sweet spot between affordability and coverage' but this doesn’t match the recommended coverage suggested by many financial planners. Turns out the recommend life insurance coverage is 10 to 12 times your annual income, plus any outstanding debts. For a dual-income household carrying a $750,000 mortgage, that $500K of coverage falls dangerously short.

The risk isn't that Canadians are choosing to be underinsured. It's that they may be defaulting to a number that feels safe without doing the math.

Women protect children, men protect partners — and both may be leaving gaps

The data also surfaces a notable split in how men and women approach beneficiary designations. Of all term life insurance applicants who named a beneficiary, nearly 3 out of 4 (74.2%) chose a spouse or partner. Children came in second at 19.9%, with parents at just 2.8%.

But those averages hide a significant gender divide. Men named a spouse or partner 83% of the time; women did so 65.5% of the time. Women were more than twice as likely as men to include children as beneficiaries — 28.8% compared to 10.7%.

The instinct to protect children is understandable, but it can create gaps. Naming a minor child as a beneficiary without a legal trustee in place means that in many Canadian provinces, insurance proceeds will be paid into court and managed by the public guardian until the child turns 18. That's neither fast nor simple — particularly in a crisis.

Mental health is now a major underwriting factor — and younger Canadians are most exposed

More than half of all term life applicants (51.3%) reported at least one medical condition in the PolicyMe data. Mental health conditions dominated the younger cohorts: 37.1% of 18 to 29-year-old applicants reported a mental health condition, compared with just 3.8% of those over 60.

The 30-to-44 age group showed an even starker pattern. While they made up 46.6% of all applicants reporting any medical condition, they represented 64.6% of those reporting a mental health condition specifically.

The report authors note that insurers “will likely need to continue evolving their coverage models to better reflect modern wellness patterns,” but in the meantime, applicants with mental health histories need to be strategic.

How to protect your health and your financial future

To protect your health and keep your options open, you’ll need to keep a well-documented treatment history. If you a can demonstrate stability for your condition, insurance underwriters will generally view this as more favourably compared to an untreated or undisclosed condition.

Another good strategy is to buy life insurance early — before additional risk factors accumulate. For younger Canadians, this strategy remains one of the most powerful tools to obtaining financial protection for loved ones.

Gen Z's secret premium problem: Vaping counts as smoking

Gen Z is the most sober generation of young Canadians on record — just 1.0% of 18 to 29-year-olds report drinking one or more alcoholic drinks per day, compared with 4.4% of those over 60. On the surface, that looks like a health win.

But the data tells a more complicated story. Nicotine use among 18 to 29-year-olds is higher than any other age group, at 7.3%. And cannabis use is at 13% among that same cohort.