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Key Takeaways
Term life insurance is best for most Canadian families who have financial obligations and dependents for 10 to 30 years.
Permanent life insurance is best for financial planning benefits and those anticipating future health problems.
Term provides coverage for a fixed period of time, usually between 10 and 30 years, whereas permanent life insurance provides coverage for the rest of your life.
Permanent life policies can sometimes have an investment component; term does not.
A permanent life insurance policy is usually five to 15 times more expensive than a comparable term policy.
What’s the difference between term life insurance vs. permanent life insurance?
Term and permanent life insurance are the two main types of life insurance policies available in Canada.
The key difference between these two types of policies:
Term life insurance pays out a tax-free death benefit to your beneficiaries if you pass away during the term’s set period.
Permanent life insurance covers you for the rest of your life after you activate your policy, providing the death benefit to your beneficiaries regardless of when you pass away.
Term policies are definitely becoming very popular in Canada, especially for those seeking financial protection for temporary obligations. Individual (i.e. not group) term life sales grew 40 per cent in Canada in 2021, more than double that of whole life or universal life insurance.
Let's look at each policy type further.
Feature
Term Life Insurance
Permanent Life Insurance
Coverage duration
Fixed term: typically 10, 20, or 30 years
Lifelong coverage (as long as premiums are paid)
Types of policies
Typically just “term life”
Includes whole life, universal life, and term-to-100
Coverage amount
Typically $100,000 to $10 million
Varies based on plan type
Premium structure
Usually fixed for the term
Some have fixed premiums; others allow adjustments
Renewability
Some policies are renewable
Not applicable ( doesn’t expire while premiums are paid)
Convertibility
Some policies can be converted to permanent
Not applicable (policies are already permanent)
Policy expiry
Ends after the specific period unless renewed or converted
Expires only if you stop paying premiums
Cash value/investment component
No cash value
Some types include a savings/investment component (e.g. whole or universal life)
Best suited for
Parents with minor children, mortgage holders, couples, business owners
High-net-worth individuals, those with estate planning needs, or lifelong financial dependents
This quick video is a great primer:
Pros and cons of term life insurance vs permanent life insurance
Life insurance is a smart choice if you have financial obligations that could become burdensome to your loved ones if you pass, but the right type of life insurance policy for you will depend on your financial needs, goals, and stage of life.
Term life offers simple, affordable protection for a set number of years, while permanent life offers lifetime coverage and some financial planning advantages, but at a much higher cost.
Type
Pros
Cons
Term
Much more affordable than permanent life insurance coverage
Straightforward and easy to understand
Can match your coverage to temporary needs (e.g. mortgage, dependents)
Some policies offer the option to renew
Coverage ends after the term unless renewed or converted.
Premiums increase significantly if you renew later in life.
Doesn’t build cash value or act as an investment.
Permanent
Lifelong coverage and guaranteed payout (as long as premiums are paid).
May include a savings or investment component (cash value).
Can support estate planning or cover lifelong financial obligations.
Significantly more expensive (can be 5–15x the cost of term).
More complex to understand and manage.
Policy cash value returns are typically lower than other investment options.
May not be necessary for those with temporary financial needs.
Pros of term life insurance
More affordable than permanent life insurance: Premiums are typically much lower, making it accessible for families, homeowners, and young professionals.
Matches your temporary needs: Ideal for covering short-term expenses that won’t last forever, like raising children, paying off a mortgage, or replacing income until retirement.
Simple to understand: With no cash value or investment component, term policies are straightforward and easier to manage compared to whole life, universal, or term-to-100 policies.
Flexibility to convert or review: Some policies offer the option to convert to a permanent policy or renew at the end of the term.
Cons of term life insurance
Coverage ends after the term: You'll need to renew or apply for a new policy if you still need insurance when your term ends, and this may lead to a higher cost due to age or health changes.
No cash value: There is no investment component for term life policies, so you won’t receive any return for this policy type—and you can’t make any withdrawals via policy loan.
Pros of permanent life insurance
Lifelong coverage: As long as you pay your premiums, your beneficiaries are guaranteed a payout, no matter when you pass away.
Helps with estate planning: Having a permanent life insurance policy could come in handy if you anticipate paying estate tax on your estate when you pass away. Unlike a mortgage, estate tax isn't an expense that you can pay off earlier in life when a term life insurance policy still covers you.
May support passing on property: A permanent policy could be purchased as a way to offset the eventual life insurance tax liability if you own a second residence and want to pass it on to the next generation.
Can cover lifelong financial responsibilities: A permanent policy may be something to consider if you know you’ll have lifelong costs, such as a child or other dependent with a disability you support, which may cause your coverage needs to stay level.
Cons of permanent life insurance
Significantly more expensive: Premiums can be five to 15 times higher than term policies for the same coverage amount.
Over-insures many Canadians: It assumes you have the same financial obligations forever. If you don't expect to have dependents like young kids, aging parents or debt (e.g. your mortgage) well into the future, why pay life insurance premiums for the rest of your life?
Lower investment returns: The cash value component typically grows slowly and may offer lower returns than other traditional investment vehicles like TFSAs or RRSPs. Plus, investments don’t have a guaranteed rate of return.
Complex to manage and understand: With multiple types (whole life, universal life, term-to-100), and varying features, these policies require more effort to maintain and optimize.
Ties up funds you could invest elsewhere: Paying higher premiums means less flexibility to build wealth through more effective avenues.
Which is cheaper? Term vs. permanent life insurance
Term life insurance is almost always cheaper than permanent life insurance, at least for healthy average Canadians.
Take a look below at the cost comparison for the various types of life insurance policies:
Policy type
Term length
Monthly premium
Notes
Term life
10-year
$14
Cheapest option. Good for short, specific needs like debts and childcare.
Term life
20-year
$19
Balances cost and duration.
Term life
30-year
$30
Long-term protection and higher cost.
Whole life
Lifelong
$100–200
5–15x more expensive. Cash accrual and lifetime coverage.
* Rates are based on a 30-year-old nonsmoking woman with $500,000 of coverage from PolicyMe. Men typically pay higher rates than women. Smokers pay higher rates than non-smokers.
While life insurance costs vary from person to person, there is a consistent trend when comparing term and permanent life insurance premiums. Permanent life insurance policies are typically up to 15 times more expensive than term coverage. That’s because permanent coverage is guaranteed to pay out and may include a savings or investment component.
Note that life insurance premiums vary based on age, sex assigned at birth, smoking status, health, lifestyle, coverage amount, and policy type.
Is permanent life insurance a good investment?
Permanent life insurance offers an investment component, but this doesn’t mean it’s a good investment. It can seem like a positive feature and a good selling point, but for most people, keeping investment funds in permanent policies doesn’t offer the same flexibility and potential returns that a separate investment fund would.
On top of this, the premiums on a permanent policy are significantly higher than term policy premiums, meaning you’ll have less to invest overall. If you calculate what you’ll pay for a term life insurance policy compared to a permanent one, you’ll find the difference significant.
Next, calculate what you could earn if you invested the cost difference separately, earning interest in a traditional investment account over the next 10 or 20 years.
In most cases, a term life policy is ideal to meet your family’s coverage needs and financial goals, and you can invest the difference in a separate investment account. This way you have the freedom to control how it’s invested and earn greater returns.
How do I know which type of life insurance is best for me?
The best life insurance options will depend on your specific financial responsibilities and long-term goals.
If your needs are temporary, like covering your mortgage, replacing income while your kids are still dependent, or providing financial support for a partner until retirement, term life insurance is likely the better fit. It offers affordable coverage and is designed to match the timelines of these common life stages.
For those with lifelong needs, like supporting a dependent with a disability or managing a large estate, permanent life insurance may be worth considering. Just keep in mind that the higher cost only makes sense when those needs are truly long-term.
Who is term life insurance good for?
Term life insurance is a practical, cost-effective way to protect your family during the years they need it most.
Here are some common examples:
Parents with young children: To replace your income and cover living expenses until your kids are financially independent.
Couples who rely on each other’s income: To help cover shared expenses while you're still working toward retirement.
Mortgage holders: To ensure your family can pay off the home if something happens to you before the mortgage is fully paid.
Business owners: To cover business debts or financial obligations if you're no longer around to manage them.
Couples nearing retirement without sufficient savings: As a safeguard while building your retirement cushion.
Those supporting elderly parents: To protect your loved ones from financial strain if you're the primary caregiver or income provider.
If you have permanent life insurance needs, like a disabled child or are an exceptionally high income earner, a whole life policy might make sense. Here are a few scenarios:
High net worth individuals ($10M+ in assets): There are tax-deferred benefits for those that have already maxed out TFSA and RRSP accounts
Canadians with complex estate planning needs: To protect the value of the estate to maximize the inheritance you pass on
People who need a forced way to save for retirement: But this should not be a standalone retirement saving strategy
FAQ: Term vs. Permanent life insurance
Permanent life insurance lasts your entire life, as long as you continue to fulfil your premium payments. However, this lifelong coverage comes at a steep cost, often making these policies unnecessary for most Canadians. Unless you have long-term financial obligations, a term life policy can provide the right amount of protection at a fraction of the price.
Permanent life insurance is often seen as a poor financial choice for most Canadians because of its high cost and unnecessary complexity. While it provides lifelong coverage and may build cash value, the premiums are significantly more expensive (often five to 15 times the cost of term life insurance for the same death benefit).
A small percentage of people could benefit from this type of policy, and if that’s true for you, we’ll tell you. However, our goal is to provide you with the best policy to offer you and your family the best protection that meets your needs.
In most cases, we find that term life insurance is the best option, so that is what we recommend.
The question of whether permanent life insurance is haram (forbidden) can be a bit tricky. In Islam, things like uncertainty (gharar) and gambling (maisir) are considered haram. Some argue that since traditional life insurance involves elements of these, it might be seen as haram.
However, it's important to remember that the interpretation can vary among different scholars and individuals. Some might see the concept of insurance, including permanent life insurance, as a form of mutual help and protection among the community, which is in line with the principles of Islam. To sum up, whether permanent life insurance is considered haram or not can depend on the individual's interpretation of Islamic principles. If you're unsure, it's always a good idea to seek advice from a knowledgeable person in your religious community.
Whole life insurance is one type of permanent life insurance, but permanent life insurance also includes other options like universal life and term-to-100.
Whole life is the most traditional version of permanent life insurance, with fixed premiums, guaranteed coverage, and a cash value component. Other permanent policies, like universal life, offer more flexibility but can be more complex to manage.
Yes, most permanent life insurance policies build cash value over time, which acts like a savings component within the policy. You can sometimes borrow from or withdraw this amount, but doing so may reduce your death benefit.
Keep in mind that this feature is funded by the much higher premiums you pay compared to term life insurance. For most people, investing separately is a more flexible and cost-effective option.
Bonnie Stinson
Bonnie Stinson is an insurance writer and researcher in Toronto with a decade of experience producing helpful, accurate content for Canadians. They have published resources for some of Canada's most innovative and consumer-trusted companies in the health, legal, and fintech sectors.
Bonnie Stinson is an insurance writer and researcher in Toronto with a decade of experience producing helpful, accurate content for Canadians. They have published resources for some of Canada's most innovative and consumer-trusted companies in the health, legal, and fintech sectors.
