In Canada, life insurance falls into two main categories: term life insurance and permanent life insurance, each with distinct features and benefits.
Below is a breakdown to help you understand the key types and how they work.
Term Life Insurance
Coverage Duration: Fixed period (e.g., 10, 20, or 30 years).
Cost: Generally lower premiums than permanent insurance.
Purpose: Ideal for temporary needs like covering a mortgage or supporting children until adulthood. Can also be used for business purposes to fund a buy-sell or shareholder agreement, or to cover a key person in the company.
At renewal: Term policies offer GUARANTEED renewals with no medical questions asked. However, premiums increase substantially at each renewal.
Cash Value: No cash value—you’re paying strictly for coverage.
Permanent Life Insurance
Coverage Duration: Lifetime coverage.
Cost: Higher premiums, but there is the opportunity to build tax-sheltered cash value over time, and also to have the insurance coverage increase over time.
Purpose: Good for long-term financial planning, estate preservation, or leaving a legacy.
Types of permanent life insurance:
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Participating Whole Life Insurance:
- Fixed premiums.
- Lifetime coverage
- Offers dividends based on insurer’s investment performance
- Dividends can be used to reduce premiums, buy more coverage, or taken as cash.
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Universal Life Insurance:
- Flexible premiums and death benefits.
- Includes an investment component—returns vary based on chosen investments.
Choosing the Right Type of Life Insurance
- Term life suits younger individuals or families with temporary financial obligations
- Permanent life is better for those seeking lifelong coverage and wealth-building options
- Consider your age, financial goals, dependents, and budget when deciding
