Canada’s life insurance gap is widening, despite record levels of coverage

Canadians are carrying more life insurance than ever, but new analysis suggests many households are still falling short of what they actually need.

A new study from Toronto-based firm MyChoice finds that Canadian households are underinsured by an average of 14.5%, even as total life insurance coverage nationwide has reached record levels.

The disconnect, researchers say, reflects how quickly debt and housing costs have grown relative to savings, leaving many families more financially exposed than they realize.

“Both of these things can be true at the same time,” Vitalii Starov, vice-president of product growth at MyChoice, told Money.ca.

“Nationally, the total amount of life insurance coverage has increased, but much of that coverage was locked in years ago. Since then, mortgage balances have increased, consumer debt has risen, and average salaries are higher, all of which materially change how much protection a household actually needs.”

Debt growth is outpacing protection

Using provincial data from Statistics Canada, CMHC and the Canadian Life and Health Insurance Association, MyChoice compared how much life insurance households currently carry with how much coverage they would need to realistically replace income and clear debts in the event of a death.

Nationally, the study estimates the average household should carry roughly $595,000 in life insurance coverage. Actual coverage, however, averages about $509,000, leaving a shortfall that widens significantly in certain provinces.

Ontario shows the largest gap in the country, where Households need close to $794,000 in coverage, but on average hold about $552,000 — a gap of more than 30%.

“It’s a combination of factors, but mortgage debt is the primary driver,” Starov said. “Ontario households carry the highest average mortgage balances in the country. The gap is also amplified by rising non-mortgage debt and higher average salaries across the province.”

Alberta and Quebec also show sizable gaps of 21% and 25%, respectively, while British Columbia households are underinsured by just over 16%. By contrast, Manitoba and Nova Scotia appear closer to a balance, with average coverage roughly matching estimated needs.

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Why many families don’t realize they’re exposed

One reason the gap persists, according to Starov, is that life insurance is often treated as a ‘set-and-forget’ decision.

“The most common mistake is not reviewing coverage regularly or when a major life event occurs,” he said. “Policies are often purchased at a single point in time and then left unchanged, even as families have more children, take on more debt, change jobs, or see their incomes rise.”

As a result, coverage that once seemed sufficient can quietly fall out of sync with a household’s real financial obligations. Rising housing prices have magnified that risk, particularly for younger families who entered the market in recent years with large mortgages and thinner savings buffers.

MyChoice’s analysis shows mortgage debt now accounts for roughly three-quarters of total household debt — meaning an unexpected loss of income could quickly put housing stability, education savings and retirement plans at risk.

What underinsurance can mean in practice

The financial consequences of inadequate coverage can be far-reaching. Without enough life insurance, families may be forced to divert savings, sell assets or take on additional debt to cover everyday expenses, mortgage payments or long-term goals such as post-secondary education.

In households already stretched by higher interest rates and living costs, that pressure can compound quickly. The study notes that rising debt is outpacing both income growth and asset accumulation in many provinces, leaving less room for error when something goes wrong.

At the same time, many Canadians hesitate to revisit coverage because they assume doing so means higher premiums. But according to Starov, that’s not always the case. “The most realistic first step is re-aligning coverage structure, not necessarily increasing spending.”

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A more practical starting point

For households that suspect they may be underinsured but feel financially constrained, Starov recommends starting with a review rather than a purchase.

“For many families, it means checking whether their existing policies are still the right type, term length or allocation between partners,” he said. “In some cases, reallocating coverage toward the primary income earner or better aligning term lengths can meaningfully reduce risk without a large increase in premiums.”

He also notes that pricing and underwriting standards vary widely across insurers, making comparison shopping worthwhile, particularly as household finances evolve.

As debt levels rise and savings struggle to keep pace, the MyChoice findings suggest that life insurance is becoming less of a secondary consideration and more of a core element of household financial resilience.

“Many Canadians believe they’re adequately insured,” MyChoice CEO Aren Mirzaian said in the report. “But the numbers simply don’t support that claim. Reviewing your life insurance isn’t optional anymore, it’s a critical pillar of long-term financial stability.”