Life Insurance
Life Insurance Broker, Agent, Advisor: What's The Difference? (Canada-Specific Guide!)
August 31, 2023
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6 minutes
Life Insurance
Life Insurance Payout in Canada: What Is It and How Does it Work? (2023)
June 1, 2023
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Key takeaways:
The primary differences between term and universal life insurance are:
Universal life insurance policies had some initial traction ‘80s, but their popularity has declined since, reports WSJ. These policies ended up facing a lot of warranted criticism (which we will get into below!).
Another key fact about universal life: your policy’s cash value is tied to investments so you must manage your policy’s investments. If they underperform, your premium payments may rise or your policy can lose its cash value entirely.
This table gives you a high-level glimpse at the differences between universal and term life insurance.
The coverage length for universal life insurance is the policyholder's whole life and for term life insurance the length will vary per policy.
Term life coverage depends on how long you need your policy for. For example, you’ll see term life insurance lengths listed in years, like 10 years, 15 years, 20 years, 30 years.
The average Canadian family with term insurance holds a 20-year term; enough to cover their mortgage or the period before their kids become financially self-sufficient.
Premiums are not stable for a universal life insurance plan but they are stable for term life insurance.
Universal life insurance premiums aren’t stable because some of what you pay goes toward the investment part of the policy. So as your investments fluctuate, your premiums can too.
Term insurance has level premiums. This means that the monthly premium will be the same from the day you sign and throughout the entire policy length.
The stability of monthly premiums for term life insurance makes it a safe option for Canadians. And, the younger you are, the lower your life insurance costs will be.
The cost of premiums for universal life insurance can be 10x more than term life premiums.
Universal life insurance plans tend to be significantly more expensive because they cover you for life and they have cash values attached to them.
Below you can see the estimated premiums for term policies compared to a universal policy, depending on the life insurance company.
*Rates publicly available as of November, 2022.
You can see how affordable term life insurance is compared to universal life. PolicyMe doesn't offer universal policy, but our term rates are some of the lowest in Canada.
For the same coverage, a non-smoking 30-year-old woman would pay an estimate of just $21.80 a month with PolicyMe.
There’s no cash value for term life insurance, unlike universal life insurance. But, the cost of insurance is usually more than the cash value of a universal life insurance plan.
Because term life premiums can be 10x cheaper than universal life premiums, Canadians can save a lot of money with a term policy.
Then, you can invest the money you saved in more stable areas like RRSPs and TFSAs.
If you’re considering buying universal life insurance for the cash value, here are some important considerations from life insurance advisor, Erik Heidebrecht:
This visual shows you how a universal policy can collapse onto itself:
The bottom line? Erik explains, "Universal life insurance is a product with a lot of risk. And "the reward" often isn't worth the work you'd have to put into it."
The death benefit for universal life policies are only given if the policy’s cash value remains above zero. But term life insurance guarantees a death benefit if you pass away during the policy term.
The death benefit for a universal life policy is paid out to your loved ones whenever you pass away.
For term life insurance, however, if you outlive your policy, there’s no death benefit. For example:
Managing your policy for universal life insurance is a large time commitment, unlike term life insurance.
There is one main type of policy for term life insurance and three types of policies for universal life insurance in Canada:
When comparing term vs. whole vs. universal life insurance, remember that whole and universal are permanent life insurance types and have cash values.
The difference between universal life, whole life and term life insurance is that universal and whole life are types of permanent life insurance. This means you get lifelong coverage.
Term life insurance covers you for a specific period of time. So premiums are usually cheaper for term life insurance compared to universal life insurance and whole life insurance.
Whether term or universal life insurance is better for you depends on your age, financial status and family situation.
Term life insurance is better for the average Canadian family when they have people that rely on them financially.
For example:
And if the people who rely on your finances won’t need your help after a certain year, term insurance has the most advantages.
For example, if your mortgage will be paid off within 15 years and your kids will rely on you to help pay for their education in the next 10 years, then you can get a 15-year term policy.
The upside is you only pay premiums for 15 years. If you outlive the policy, you won’t receive any cash, but you’ll save a lot of money by not paying for life insurance premiums anymore.
At PolicyMe, we’re intentional about the coverage we offer. We choose to focus on an affordable product best suited for most families: term life insurance.
You can personalize and create a term life insurance policy that best suits your financial needs, selecting only the term length and amount of coverage that you need, not a penny more.
Universal life insurance is better for Canadians when they are financially savvy, with a lot of time to dedicate to managing their policy, in a high-income tax bracket and/or younger.
For example:
Keep in mind that new tax rules in Canada gave life insurance policies less tax-exempt room. So you’ll have less room to fund policies and your beneficiaries receive fewer tax-free benefits when you pass away.
Life insurance advisor Erik Heidebrecht also has some guidance on who universal life insurance is right for:
Now that you’ve learned about the difference between universal and term life insurance in Canada, here are some next steps:
The disadvantage of universal life insurance compared to term life insurance is that it’s about 10x more expensive. This makes universal life insurance less affordable for many people.
Another disadvantage of universal life insurance compared to term life: Because universal life has cash values based on investments, its value can be lower than what you’ve paid into it.
On the other hand, term life insurance premiums are always the same and your death benefit amount will also stay the same while your policy is active.
Someone would take out a term life insurance policy rather than a whole or universal life policy because it’s more affordable.
And for this more affordable cost, term life insurance can give you adequate life insurance coverage that helps you and your family have financial protection.
If you outlive your universal life insurance policy, the plan may mature and you can get the cash value of your policy. Or depending on your age, the policy may expire.
For example, some universal life policies might say that they’ll be active until you turn 100 years old. And after this age, you might have to pay a lot of money to keep the policy.
On the other hand, if you outlive your term life insurance policy, your loved ones will not receive a death benefit.
But if your term policy expires and you still want life insurance, you can buy a new policy. Keep in mind, it will be more expensive than your original policy.
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