Permanent Life Insurance: What You Should Know

Are you interested in permanent life insurance in Canada but aren’t sure where to start? Permanent life insurance is a great option for those looking for long-term coverage, policy flexibility, guaranteed premiums, and the potential to grow cash value within the policy. In this comprehensive guide, we will compare the different types of permanent life insurance and explain the benefits and drawbacks of each so you can make the decision that’s right for you.

In this article:

• What is Permanent Life Insurance
• Cost of Permanent Life Insurance
• What is a Cash Value and How Can It Be Leveraged
• Permanent Life Insurance: Pros and Cons
• Term 100 Life Insurance
  • Cost of Term 100 Life Insurance
  • Pros and Cons of Term 100 Life Insurance
  • Is Term 100 Life Insurance Right for You?
• Whole Life Insurance
  • Cost of Whole Life Insurance
  • Pros and Cons of Whole Life Insurance
  • Is Whole Life Insurance Right for You?
• Universal Life Insurance
  • Cost of Universal Life Insurance
  • Pros and Cons of Universal Life Insurance
  • Is Universal Life Insurance Right for You?
• Frequently Asked Questions (FAQs) About Permanent Life Insurance

What is Permanent Life Insurance

There are two main types of life insurance coverage within Canada, term life insurance and permanent life insurance. Term life insurance is a type of policy that pays out a death benefit if the policyholder were to die within a specified period, typically of 10, 20, or 30 years. Permanent life insurance is a type of policy that pays out a death benefit to beneficiaries when the policyholder dies and offers coverage for the duration of the policyholder’s life, as long as the policy doesn’t lapse.

Term 100, whole life, and universal life insurance are the three main types of permanent life insurance in Canada. Here is a general overview of the features and benefits of these three types of permanent life insurance policies:

Cost of Permanent Life Insurance

Permanent life insurance policies are typically more expensive than term life insurance policies. This is because they last the duration of the policyholder’s life and generally offer fixed premiums, meaning premium costs don’t increase with age, new health issues, lifestyle changes, and so on.

Like term life insurance, you can pay monthly or annual premiums. Certain permanent life insurance policies expect policyholders to pay premiums until age 100, but other policies only ask policyholders to pay premiums for a set number of years, typically 10, 15, or 20 years, while still offering lifetime coverage.

Term 100 life insurance is one of the most cost-effective permanent life insurance options available to Canadians. This is because unlike whole life or universal life insurance, term 100 policies do not have a cash value component or the ability to deposit excess premiums into a tax-sheltered account. However, universal life insurance policies can be structured to mimic a term 100 policy, meaning the policy would be “minimum funded” and no cash value component would be accumulated inside of the policy. The advantage of a minimum-funded universal life insurance policy is that it allows the same affordability of term 100 life insurance while still providing the option to deposit funds into the policy at a later date.

What is a Cash Value and How Can It Be Leveraged

Whole life insurance and universal life insurance policies also provide the option for a cash value component within the policy, which grows on a tax-deferred basis. Depending on the type of policy there are different stipulations for how the cash value component can be used. For example, certain types of policies may allow policyholders to have full access to the cash value component and other policy types may use the cash value as a way to offer more affordable premiums.

Policyholders are typically able to withdraw or borrow against the cash value in both universal life and whole life policies. Typically whole life policies allow 90% of the cash value to be borrowed against, while universal life policies allow between 50-90% depending on underlying investment inside the cash value of the policy.

Here is a helpful overview of how cash value differs between permanent life insurance policies:

Permanent Life Insurance: Pros and Cons

The advantages of permanent life insurance include:

• Coverage lasts for the entire lifetime of the policyholder.
• Generally, permanent life insurance offers level premiums that don’t increase with age, health status, lifestyle changes, and so on.
• Some permanent life insurance policies offer a tax-sheltered investment to policyholders known as a cash value component.
• Some permanent life insurance policies only require payments for a set period such as 10, 15, or 20 years while still offering lifetime coverage.

The disadvantages of permanent life insurance include:

• Permanent life insurance policies are more expensive than term life insurance policies.
• Many permanent life insurance policies do not include a cash surrender value meaning that if the policy lapses from a missed payment you would lose coverage as well as the cash value of the policy.
• If your life insurance needs change over time there is less flexibility to change the coverage amount within a permanent life insurance policy.

Term 100 Life Insurance

Term 100 life insurance offers lifetime coverage with no investment options making it the most straightforward option when it comes to permanent life insurance. Premiums are typically paid only until the policyholder’s 100th birthday but the policy continues to provide life insurance coverage beyond this date. Typically this type of insurance is available to Canadians aged 18 to 85.

Cost of Term 100 Life Insurance

Term 100 life insurance is the most affordable option when it comes to permanent life insurance in Canada. This is because this type of policy does not offer a cash value component. Because of the simplicity and affordability this type of plan offers, this is one of the most popular options when it comes to permanent life insurance in Canada. That being said, the actual cost of a term 100 plan will depend on the life insurance company and its specific requirements.

Here are the monthly term 100 life insurance rates for Canadians aged 40 with $100,000 in coverage:

Pros and Cons of Term 100 Life Insurance

The advantages of term 100 life insurance include:

• Insurance coverage does not expire or need to be renewed like term insurance.
• Offers level premiums that do not increase over time.
• It is more affordable than other permanent life insurance plans.
• This type of policy is the most straightforward to understand.
• It is easier to terminate this type of policy with minimal loss than other types of permanent life insurance.

The disadvantages of term 100 life insurance include:

• There is no option for a cash value component or dividends.
• It is more expensive than term life insurance.
• This type of policy is less flexible than other types of permanent life insurance.

Is Term 100 Life Insurance Right for You?

Term 100 life insurance is a great option for Canadians interested in a straightforward and affordable life insurance plan that offers permanent coverage. If you aren’t interested in complex investments and cash values and are interested in the low cost and simplicity of this type of policy, term 100 life insurance may be right for you.

Whole Life Insurance

Whole life insurance offers permanent life insurance coverage with the option to accumulate a cash value component. The difference between whole life insurance and other types of permanent life insurance is that the cash value grows on a fixed interest rate with the choice of what the cash value is invested left up to the insurance provider.

Whole life insurance can be further divided into participating whole life policies and non-participating whole life policies. For participating insurance policies, interest is distributed to policyholders as a policy dividend. If investments result in a loss in a given year, no dividend will be paid, but the policyholder will not lose any cash value.

For non-participating insurance policies, the life insurance company retains any interest from cash value investments and policyholders will not be offered dividends. The benefit of non-participating whole life insurance is lower premiums as these gains are factored into the premium costs.

Cost of Whole Life Insurance

Whole life insurance is one of the more expensive types of permanent life insurance as it offers guaranteed cash value growth in addition to permanent coverage. Since non-participating whole life insurance policies do not offer dividends to policyholders they offer lower premiums than participating whole life insurance policies which do offer potential dividends to policyholders.

Here are the monthly whole life insurance rates for Canadians aged 40 with $100,000 in coverage:

Pros and Cons of Whole Life Insurance

The advantages of whole life insurance include:

• Provides an opportunity to accumulate a cash value component within the policy.
• There is potential to earn dividends through a participating policy.
• The cash value is guaranteed to grow at a fixed rate.
• The cash value investment is hands-off as it is controlled by the insurance provider.

The disadvantages of whole life insurance include:

• Whole life insurance is more expensive than other types of permanent life insurance.
• There is no option to choose what the cash value component is invested in.
• The cash value typically grows at a slow rate.
• Only the death benefit is given to beneficiaries upon the policyholder’s death, the cash value remains with the insurance provider.

Is Whole Life Insurance Right for You?

Whole life insurance policies are a great option for Canadians interested in permanent coverage with the option for a cash value component that doesn’t require lots of hands-on effort to grow. If you are interested in a permanent life insurance policy with a more stable cash value component and are able to pay the more costly premiums, whole life insurance is likely the right type of policy for you.

Universal Life Insurance

Universal life insurance offers permanent life insurance coverage with the option to accumulate a cash value component, similar to whole life insurance. However, universal life insurance incorporates a potentially high-earning investment account and any excess payments can go toward investments of your choice. These investments are used towards the cash value and may cause growth or loss depending on the specific investments you choose to make.

While investment options include indexed and managed accounts, there is also the option to have a minimum-funded universal life insurance plan. This means no extra money is put into the cash value, and the policy functions similarly to term 100 life insurance. This is one of the most popular options for permanent life insurance as it is straightforward and more affordable, while still allowing policyholders to invest at a later date.

Cost of Universal Life Insurance

On average, universal life insurance is typically more expensive than term 100 life insurance and less expensive than whole life insurance. The actual cost depends on how the policy owner wishes to structure the policy, either with cash value accumulation or as a minimum-funded policy with no cash value.

Here are the monthly rates for minimum-funded universal life insurance for Canadians aged 40 with $100,000 in coverage:

Pros and Cons of Universal Life Insurance

The advantages of universal life insurance include:

• There is more control and flexibility over how much you choose to invest and what you would like to invest in.
• Any interest earned on the cash value grows tax-deferred.
• You have the option to change the size and frequency of your premium payments.
• Some universal life insurance policies allow policyholders to increase or decrease the death benefit over time.

The disadvantages of universal life insurance include:

• This type of insurance tends to be more complex and difficult to understand.
• Investments can perform poorly, resulting in a loss of cash value.
• Investment accounts may need frequent monitoring and regular rebalancing which can be time-consuming.

Is Universal Life Insurance Right for You?

Universal life insurance is a great option for Canadians who are interested in permanent coverage with the option for more control over the cash value of the policy. If you are interested in flexible permanent life insurance as well as the opportunity for a potentially high-earning investment account, universal life insurance may be the right type of policy for you.

Frequently Asked Questions (FAQs) About Permanent Life Insurance

Find a Solution That’s Right for You.

Permanent life insurance is a great option for many Canadians, but it isn’t the only option. If you would like to know more about what type of life insurance is right for you and your family you should speak to a knowledgeable financial advisor who can find a customized solution for you.

At Protect Your Wealth, we work with and compare policies and quotes from trusted life insurance companies across Canada to ensure we can find the right solution for you and your family. We provide expert life insurance solutions, including no medical life insurance, term life insurance, and permanent life insurance.

Contact Protect Your Wealth online or call us at 1-877-654-6119 to talk to an advisor today. We’re proudly based out of Hamilton, and service clients anywhere in Ontario, British Columbia, Manitoba, and Alberta; including areas such as Vaughan, Abbotsford, Winnipeg, and Lethbridge.