Whole Life Insurance

Put your mind at ease with whole life insurance. Know that the people you love most will be taken care of financially when you pass away with a life insurance policy that never expires.

WRITTEN BY
Priya Correia
Updated October 9, 2020

Have you ever considered what your family would do if you ever passed away before your time? How would they pay the mortgage and keep up with all the bills that they depend on you to cover?

With a life insurance policy, you don’t have to worry about these things. And with a whole life insurance plan, coverage will never expire while you’re still alive. 

The question is, is whole life insurance best for you? Or is there another type of policy that you may be best suited for?  

What is Whole Life Insurance?

Also referred to as permanent life insurance, whole life insurance provides coverage throughout your entire life, right up until your time of death. Your coverage period never ends, so you are always covered as long as you keep up with your premium payments. 

Whole life insurance is a popular form of life insurance coverage for Canadians and is ideal for those who want the peace of mind knowing that their families will always be financially covered. 

Since whole life insurance guarantees payout for a potentially longer period of time compared to term life insurance, it is usually the more expensive option between the two. 

How Does Whole Life Insurance Work?

Whole life insurance pays out a death benefit – or a lump sum of money – to your named beneficiaries when you pass away. When that happens, your life insurance provider will need to see a copy of your death certificate, which your beneficiaries should be able to provide. The cash payout is typically sheltered from taxation. 

There are two components of whole life insurance: the death benefit and the savings portion. The death benefit is what your beneficiaries receive when you pass away and is guaranteed. 

The savings component, on the other hand, serves as a way to help you save for the future. The premiums paid are invested, and any income earned creates a cash value for your policy that you can tap into at any point. 

If you decide to cancel the policy before you pass on, you can cash out. You can use the cashed-out funds for any purpose, such as covering your mortgage, college tuition, or even to be put toward your premiums. 

You can also use your policy as somewhat of a loan and borrow against it. If you do this, your insurance provider will likely charge interest. If the money – plus interest – is not paid back before you die, your death benefit could be reduced by the outstanding balance. In other cases, withdrawing from your account will decrease the value of the policy without affecting the death benefit. 

Thinking about creating a will? Try out Willful; a quick and affordable way to create a will. 

Pros and Cons of Whole Life Insurance

Pros 

  • Lifetime coverage. Perhaps the biggest benefit of a whole life insurance policy is the fact that it never expires. That means you will be covered for your entire life, and your beneficiaries will be taken care of financially when you pass away. This is much different than a term life insurance policy that has a finite end date and will cease coverage when that date arrives.
  • Predictable premiums. While some forms of life insurance come with premiums that may fluctuate from time to time, the premiums associated with a whole life insurance policy stay the same, even if anything changes with your health. 
  • Cash value. Since you are contributing to the savings portion of your policy, it will have a cash value and serves as an asset. As such, your policy can actually become an important part of wealth building and retirement planning.
  • Tax perks. There are a handful of tax advantages associated with a whole life insurance policy. For instance, the death benefit that is eventually paid out will be tax-free. Plus, the cash value of the policy is tax-deferred, which means you do not have to pay any taxes on any earnings. 

Cons 

  • More expensive. Since your whole life insurance policy never expires, it is more expensive than a term life insurance policy. 
  • More complex. There are a number of factors involved in a whole life insurance policy, including the cash value portion, dividend payouts, rates of growth, and so forth. All these components may be confusing for some.
  • Potentially bad investment. The interest earned on the cash value of your policy may be lower than other investment options.

Whole Life Insurance Providers

Coverage AmountAge RangeProvinces AvailableMedical Exam Needed
PolicyMe$100,000 – $10 million18 – 80Ontario, Manitoba, Alberta, British Columbia, New BrunswickNo
Policy Advisor$25,000 – $5 million18 – 72OntarioNo

Cost of Whole Life Insurance

While the cost of whole life insurance is more expensive than a term policy, the actual cost can range a great deal depending on many factors, including the following:

  • Age. The older you are when you first take out a policy, the more expensive it will be. That’s why taking out a policy when you’re younger is always advised. 
  • Gender. Women tend to be offered slightly lower premiums than men because of their longer life expectancy.
  • Health. Policyholders with no medical conditions will pay lower premiums.
  • Family health history. Even if you are healthy, a family history of certain health conditions could increase your premiums.
  • Smoking. Smokers will be charged higher premiums because of the health impact of this habit.
  • Dangerous behaviours. If you regularly take part in hobbies that are considered dangerous – such as skydiving – your policy may be more expensive.
  • Policy amount. The higher the death benefit, the higher your premiums will likely be.

Having said all that, you could pay as little as $20 a month if you’re young and healthy to hundreds of dollars a month in premiums if you’re older, unhealthy, and are looking for a high death benefit amount. 

Worried about medical costs if you get sick? Then you should look into critical illness insurance

Whole vs. Term Life Insurance

There are several key differences between whole and term life insurance policies:

Cost. Whole life insurance costs more than term life insurance simply because of the longer terms that are covered.

Coverage length. Term life insurance policies are effective for a certain amount of time, which is chosen by the policyholder. In contrast, whole life insurance policies will last your entire life. 

Flexibility. Term life insurance policies tend to be more flexible and allow policyholders to increase coverage at any point throughout the term. Whole life insurance, on the other hand, isn’t very flexible when it comes to changing the coverage amount after the policy has been taken out. 

Don’t know if whole life insurance is right for you? Check out universal life insurance

When Should You Get Whole Life Insurance?

If you have dependents who rely on your financial contributions to pay the mortgage and all other bills, then you should consider life insurance. While many Canadians opt for a term life insurance policy to cover the most pressing years when children are young or the mortgage still has yet to be paid off, a whole life insurance policy can provide your dependents with financial coverage no matter when you pass on. 

Here are some scenarios where a whole life insurance policy might make the most sense: 

  • You don’t want your family to be burdened with funeral expenses
  • You have children who will be dependant on you for many years, especially if they are in college or university
  • You still have many years left to pay off your mortgage
  • You want to provide for your spouse
  • You want to protect the inheritance you leave to your loved ones 

FAQ About Whole Life Insurance

Should I get whole or term life insurance?

Term life insurance is suitable for those who are only looking to provide financial assistance to their family during the years where bills are at their highest – such as mortgages – and children are still dependent on you as the breadwinner to pay for all of life’s expenses. 

If you want to make sure that your family is covered for a longer period of time, then a whole life insurance plan may be best. That said, you’ll need to assess your budget, as whole life insurance is more expensive than a term life insurance policy. 

Are whole life insurance payouts tax-free?

Yes, a whole life insurance policy provides a tax-free death benefit to your beneficiaries and therefore helps to preserve wealth. 

What are some alternatives to whole life insurance?

Besides term life insurance, there are other options you may want to explore: 

Universal life insurance. This type of whole life insurance does not expire, and over time, it becomes a cash asset. The payments are flexible instead of being set at a specific dollar amount. This policy type is better suited to those who anticipate income fluctuations over time or are unable to commit to paying the same premium every month.

Variable universal life insurance. With this type of policy, you can invest its cash value in the market. You can select from a range of investment options to suit your risk tolerance.

Term to 100 insurance. This type of insurance policy provides coverage for your entire life, However, premiums would stop being paid for once you turn 100 years old. There is no invested cash value with this type of policy, unlike the ones listed above. As such, this policy is usually more affordable.

Final Thoughts

Life insurance can put your mind at ease knowing that the people you love most will be taken care of financially when you pass away. And with a whole life insurance policy, your coverage never expires. It will provide lifelong coverage to you and your beneficiaries as long as your premiums are paid.