Is Group Life Insurance Term or Whole?

Is Group Life Insurance Term or Whole?

Life insurance is big business. As of 2019, over 20 million Canadians owned life insurance coverage worth over 5 trillion in total value. However, in spite of such widespread use a trillion dollar industry, there can still be uncertainty about how group life insurance works in Canada.

What is Group Life Insurance?

There are two ways to purchase life insurance. Almost 20% of life insurance holders in Canada are covered under employer provided life insurance – namely, Group life Insurance.

Most employers will deduct the premiums required from the monthly paychecks of individual employees. A number of companies will cover a part, or all, of the premiums as part of their employee benefit packages. As a result, and due to group rates, employees and their named dependents can receive a high amount of coverage for nominal costs.

There are two types of group life insurance coverages:

  • Employee Basic Life – This is the basic type of coverage, aimed to cover the employee. If the employee passes away, then the dependents avail of the benefits.
  • Dependent Basic Life – This option kicks in if any dependent (e.g. spouse or child) of the employee passes away while covered by group life.

The employers do get certain taxable benefits from what they provide for employees. For example, premiums paid for group life insurances are tax deductible in all cases where those premiums are not being paid for group term insurance (see definition below) or (optional) dependent life insurance.


Is Group Life Insurance a Term or Whole Insurance?

Insurance can either be term (that is, it stays in place for a specific period of time, over which the premiums do not change very much) or whole life (which refers to long term coverage that will last for the duration of your life and will pay out benefits to dependents, or vice versa, at any stage of life).

Group life Insurance is usually set up as a term life insurance which typically does not last for more than a set period beyond the terms of the employment, unless the company decides to extend the coverage to past employees. This means that if something were to happen post the date when the employer’s group life insurance coverage ends, no benefits are paid out.

Group life insurance may not be term insurance in cases where a lump-sum premium has either been paid or become payable. Lump-sum premiums represent all or part of premiums paid on life insurance for any period that extends more than 13 months after the payment of the premium (or conversely, more than 13 months after the time that the premium became payable, provided the premium is actually paid.)

Under group term life insurance policies, employers will pay for policy dividends, experience rating refunds and any payouts after the death or disability of an employee (current, former or retired) and their named and covered dependents.


Privately Bought Life Insurance can be Term or Life

Other Canadians, not covered by Group Life Insurance, can buy life insurance on their own, privately, typically using an advisor who can guide them towards the best options available in the market. This group represents just over 80% of the total number of people who have life insurance coverage.

People in the private market, unlike in the case of Group Life Insurance, do have the option of buying either term life insurance or whole life insurance. Term life may be part of a strategic plan – for example, buy a 20 year policy after a child is born to give him/her some protection in the event of an accidental death.

Many private buyers, though, opt for whole life insurance. The policies cost more since they last for whole lifetimes, but they are ultimately worth it.


Benefits to be Gained from Term Group Life Insurance

Calculating the benefits payable under term Group Life Insurance requires some complex calculations, which can be summarized as follows at a high level:

  • The calculations below assume that the premiums are paid up and that the rate for each individual is not different based on age or gender.
  • The benefits equal:
    • Premiums payable for term life insurance
    • All sales and excise taxes, excluding GST/HST, that are applicable towards the insurance coverage, and
    • Any sales tax or other levies on employers that pay insurance payments (e.g. Ontario/Manitoba – 8%, Quebec – 9%)


  • All premiums and taxes paid directly or through reimbursements by employers.

Many situations that go beyond these general guidelines require a more detailed calculation. Don’t try to tackle those situations without expert help.


Other Obligations for Employers

Canadian employers must pay attention to further details in order to be in full compliance.

How to Perform Payroll Deductions

Any benefit that is taxable is also pensionable. Being a non-cash benefit, however, it is not insurable. Employers must deduct income tax and CPP contributions, but not the EI premiums, for the purposes of payroll deductions.


Reporting on Benefits to the Canadian Revenue Agency

CRA requires employers to report benefits for current employees, as well as those who are on a leave of absence (e.g. maternity leave) on their T4 slips ( Use box 14 (Employment income) and the “Other information” area (code 40) at the bottom.

For former employees and retirees, employers must use the “Other information” area (code 119) on the T4A slip to report benefits (

It is important to note that all amounts should be reported by employers, since the $500 reporting threshold, as described in Guide RC4157, Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary (

Administrators or trustees of a multi-employer plan who provide taxable benefits under the plan to employees, former employees or retirees, must report all benefit amounts above $25 using the “Other information” area (code 119) on the T4A slip.

Currently, employers paying Group Term Life Insurance premiums to cover retirees are not required to report premiums in amounts higher than $50, provided it’s the only income reported on the T4A slip. The recipients must report those amounts on their personal income tax and benefits tax returns.


The Largest Life Insurance Companies in Canada

Based on 2020 annual revenues, the five largest life insurance companies in Canada were:

  • Manulife Financial Corp.
  • Canada Life
  • Sun Life Financial
  • IA (Industrial Alliance) Financial Group
  • Desjardins Group

Call an Expert to Handle Your Insurance Needs

As described above, there are a number of details that must be carefully reviewed when setting up life insurance plans, and compliance guidelines must be followed on an ongoing basis.

To receive proper guidance, consult an expert. We at the Sim Gakhar insurance agency have been advising individual and corporate clients on getting the best life insurance plans based on their needs and budgets.

Call us at (647) 889 7290 to book a call today!


What Our Clients Say

My husband and I had the pleasure of getting our life insurance through Sim Gakhar. She is professional, attentive, detailed-oriented and knowledgeable. Sim is reliable and trustworthy – from selecting the right product to providing medical records and payment process – she made it super easy. She is punctual and flexible – she always came to our home at our schedule. She ALSO helped with closing one of our older insurance policy that wasn’t working for us. We highly recommended Sim, she is definitely one of the best in the industry.
Tharmila RajasingamCo-Founder | Realtor
Sim helped me and my wife replace existing Life Insurance and Critical Illness policies that weren’t meeting our needs. Her knowledge of Canadian Insurance policies and providers is excellent. Her approach was very consultative, ensuring that she understood our situation & goals, and never overselling. We were presented with several options and given time to make the best selection. Her relationships with coverage providers ensures that the process goes smoothly. I highly recommend her.
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It has always been a pleasure conversing with Sim. She is always available, and always happy to provide you the best solution to suit your needs. One thing that makes Sim outstanding at what she does is her deep understanding of various products and how they fit within the goals of the client. It has truly been amazing 6 years since I have known Sim. Not only have I received appropriate coverage, but also was able to set up a plan for the estate. Thanks, Sim, and to anyone looking for a financial advisor or an estate planner or have any insurance needs, Sim is the person to go to. Thanks, Sim.
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Sim helped us with a life insurance policy. Her communication systems and processes and her ability to stay in touch, explain things, and move things along is as professional and streamlined as I’ve ever seen. She was an absolute pleasure to work with and has helped our family secure our financial future!
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When To Get Covered

When it comes to life insurance there really is no time that is too soon to get covered. And, this is because the younger you are, the cheaper those premiums are going to be. Not only this, but you are probably healthy right now.

If you wait until something bad happens, you will not only without a doubt face higher premiums, but you might not even be able to get covered at all.





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