Does life insurance cover car accidents?

Life insurance coverage is a way to help financially protect your loved ones if something happens to you. If you pass away unexpectedly, your beneficiaries will receive a payout, called a death benefit, as long as your policy is active, and you've stayed on top of the premium payments. This money can be used to cover things like funeral costs, outstanding debts, or everyday expenses. But you might be wondering—does life insurance cover death from a motor vehicle accident? Or does that fall under car insurance? Let's find out.

What is life insurance?

Life insurance in Canada is basically an agreement between you and an insurance company. You pay regular premiums, and in return, the company agrees to give a tax-free payout—called a death benefit—to someone you choose (your beneficiary) after you pass away.

As the policyholder, you get to decide how much money is paid out, who will receive the death benefit payout, and how long the policy lasts. While there are different types of life insurance, the main goal of any policy is to provide financial support to your loved ones after you're gone. It's meant to help your family cover not just funeral expenses but also things like capital gains, legal fees, estate taxes, and even smaller cash gifts for your beneficiaries after you pass away.

Your loved ones, or beneficiaries, can then use the life insurance payout however they need—whether it's to replace lost income, help with mortgage payments, or cover childcare and education costs. It's entirely up to them how they want to use the money.

Are car accidents covered by life insurance policies in Canada?

You may already know that most life insurance policies in Canada typically cover natural or accidental death, depending on your specific policy. Whether it’s from old age or a serious illness, your designated beneficiaries will receive the payout as outlined in your policy. But what about a death due to a car accident? Again, the answer is usually yes, as it would likely fall under "accidental death."

So, when does life insurance not cover car accidents?

If the accident and resulting death were caused due to risky or illegal behaviour. Life insurance is designed to provide financial protection whether you pass away from natural causes, an accident, or an illness. However, there are exceptions. For example, if a policyholder passes away in a car accident due to driving under the influence or street racing, the life insurance claim may be denied.

Other reasons life insurance won't pay out include cases of fraud or if the policyholder commits suicide, whether in a motor vehicle accident or otherwise. It’s always a good idea to check with your life insurance company for a full list of exclusions.

What if I don't die in a car accident? Can I still claim life insurance?

If a policyholder is injured in a car accident and ends up disabled or severely injured, the insured person may be able to tap into something called "living benefits" through their life insurance, if the policy has them. Life insurance is mainly there to protect your loved ones after you’re gone. It can also offer benefits that help you while you’re still alive. These living benefits can provide financial support during tough times, like an illness or a serious injury sustained in a car accident.

As we mentioned earlier, there are different types of life insurance policies: term life insurance and permanent life insurance, and you can typically add on living benefits to both types. We will explore other insurance options below:

Disability insurance

One type of living benefits add-on is disability insurance. If you're involved in a car accident and receive severe injuries where you're no longer able to work, you may be able to file a claim through your disability insurance add-on.

Disability insurance gives you a tax-free monthly income if you’re unable to work because of a serious injury or illness. It’s a good option if you’re under 60, have a job, and don’t have enough savings to cover lost income in case you become disabled and can’t work.

Long-term care insurance

Another option you may be offered to add to your life insurance policy is long-term care insurance. If you're injured in a car accident to the point where you can no longer take care of yourself, you may be able to file a claim under your long-term care insurance add-on.

Long-term care insurance gives you a tax-free weekly benefit to help cover the cost of care when you’re no longer able to do two of the basic daily activities on your own, like bathing, dressing, toileting, maintaining continence, eating, or walking. This insurance can be used to help with the expenses of long-term care, whether you receive it in a facility or at home.

When do car accidents affect life insurance?

A car accident won’t directly impact your life insurance, but it could affect it in a few different ways depending on the circumstances. Let's examine each case individually below:

Before getting life insurance

When insurers assess your risk for life insurance, one of the things they look at is your driving history. If you’ve had frequent or serious accidents, especially if you were at fault, it can increase the risk of insuring you (just like with car insurance). As a result, your premium could end up being higher.

After getting life insurance

A car accident won’t affect the life insurance you’ve already purchased unless it leads to serious injuries that could impact your life expectancy, like if someone is in a car accident and suffers head trauma, spinal cord damage, or organ damage. In these cases, life insurance companies have the right to reassess your risk and adjust your premium unless you have a guaranteed premium.

That said if you have permanent life insurance, your fixed premiums won’t change, no matter what happens to your health. However, if you have term life insurance, your renewal premium could be much higher if you develop new health issues.

Accident resulting in death

If a policyholder dies in a car accident, it won’t affect the life insurance payout unless the accident falls under one of the policy's exclusions. For instance, the life insurance claim may be denied if the accident was caused by driving under the influence or if the collision resulting in death is ruled a suicide and the policyholder had the policy for less than two years.

How much is life insurance in Canada?

When you buy life insurance, you transfer the financial burden of your passing to the insurance company. In return for the premiums you’ve paid, the insurer guarantees a death benefit will be paid to your beneficiaries when you die.

How much you'll pay for life insurance in Canada depends on several factors. To calculate your premium, the life insurance company evaluates your risk profile, meaning anything that increases the likelihood of death will raise your premiums. Here are some of the factors they consider:

• Your age
• Your gender
• Your driving record
• Your family's medical history
• Your current health
• Your job/career
• Your hobbies

Who pays first, life insurance or car insurance?

If you're hurt or killed in a car accident, it might seem like the obvious move is to file a claim for medical and rehab expenses or funeral expenses with your car insurance right away.

But what surprises many people is that you actually need to use your primary insurance benefits first (in this case, your life insurance) and exhaust those before turning to your car insurance for accident benefits coverage. In fact, in certain provinces like Ontario, it’s required by law—you have to use your primary insurance, whether it's life insurance, OHIP, or an employee health plan, before your auto insurance steps in.

So, if your life insurance policy will cover more than enough money for funeral expenses or disability living benefits, you won't need to file a claim under your car insurance policy. However,if you're injured in a car accident and don't qualify for either the disability or long-term car insurance add-ons you have, then you can file a claim with your car insurance company under accident benefits coverage.

What is accident benefits coverage?

You've probably heard of accident benefits coverage, seeing as it's a mandatory part of liability car insurance in Canada. It's coverage that's designed to protect anyone injured or killed in an accident, whether it’s the driver, passengers, or even pedestrians and bystanders.

Accident benefits coverage and limits can vary across Canada depending on which province or territory you live in. In Ontario, for example, these benefits can help cover a variety of medical expenses, including prescriptions, rehab, lost wages, and even funeral costs.

Contact BrokerLink today to learn more about life insurance

Reach out to the licensed insurance brokers at BrokerLink to learn more about life insurance in Canada. One of our BrokerLink advisors can guide you through the process of buying a policy, help you choose the right type, and even suggest who to name as your beneficiary.

We can also explain what to avoid when purchasing insurance and give you an idea of what makes a great life insurance policy, covering all the important details. Ready to get started? You can reach us by phone, email, or in person at any one of our locations throughout Canada. We also encourage you to take advantage of our free online quote tool that can provide you with a competitive quote in minutes.

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FAQs: Does life insurance cover car accidents?

Does life insurance pay for car accidents?

Generally yes, life insurance does pay for car accidents if they result in death if the death is considered accidental. However, if the car accident resulting in death was due to something excluded from the life insurance policy, like driving under the influence, then the life insurance claim may be denied.

What does life insurance usually cover in Canada?

Life insurance in Canada typically covers both accidental and natural causes of death. It can provide financial support for things like monthly bills, debts, education costs, and dependent care. It can also help with end-of-life expenses, estate planning, legacy funds, and even disability or long-term care.

What kind of death does life insurance not cover?

While life insurance covers both accidental and natural deaths, it won't pay out for certain deaths, like suicide, or deaths due to illegal or risky activities, like skydiving or crashing while street racing, resulting in death.

How does life insurance fit within my estate planning?

When you pass away, your estate is evaluated and taxed based on the current market value of all your assets, like property, business shares, and investments. This can result in a hefty tax bill, which could reduce the overall value of your estate and leave your loved ones with a significant financial burden. That’s why including life insurance in your estate plan can be helpful. By having a life insurance policy with enough coverage, you can make sure the taxes are covered without impacting the value of your estate.

Is life insurance taxable in Canada?

In Canada, most life insurance policies offer a tax-free death benefit to the beneficiaries you name in the policy. This means they won’t have to pay income tax on the money they receive. However, if you don’t name a beneficiary or if your estate is listed as the beneficiary, the death benefit could be taxed since it would then become part of your estate.

When should you get life insurance?

The right time to get life insurance can vary from person to person. A key factor to consider is whether you have dependents or others who rely on you financially. Many people start thinking about life insurance during major life events like getting married, buying a home, or having children.

There are also advantages to getting life insurance when you're younger. The premiums are usually lower, meaning you can lock in the same coverage at a more affordable rate compared to waiting until you're older.

Can life insurance expire?

Yes, some life insurance policies expire after a certain time, while others don’t. With term life insurance, the coverage ends after a set term or when the insured person reaches a certain age. On the other hand, permanent life insurance stays active for your entire life as long as you keep paying the required premiums.

If you have any questions, contact one of our local branches.