As a parent, you want to make sure you have the right coverage and type of life insurance to protect your family. 

It’s serious peace of mind knowing that your mortgage will be paid off, or your kid’s education will be paid for in the unlikely event you won’t be around. 

But can life insurance also be a good investment? For many, that’s the appeal of whole life insurance, a type of permanent life insurance. 

That said, for most families, the high monthly cost of whole life insurance far outweighs any benefits.

Here’s what you need to know about how whole life insurance in Canada works, who it’s for and why this type of life insurance policy might not be the best bang for your family’s buck. 

What is whole life insurance in Canada?

Whole life insurance in Canada is a type of permanent life insurance policy that covers you until you pass away, whether that’s in a few years (unlikely!) or a few decades. 

Here’s a quick explainer video that breaks down how permanent life insurance works.

Here are some features of whole life insurance:

  • Premiums never go up
  • Guaranteed death benefit is paid out when you pass away. 
  • Cash savings component 

The cash savings component is where money builds up in a cash savings account which can be paid out when you pass away or, in some cases, accessed by you ahead of time. 

The alternative to whole life insurance is term life insurance, where you buy a policy for a set period of time, whether that’s ten, twenty or thirty years. 

When that term policy expires, you can decide if you want to buy a new policy or if you no longer need life insurance at all.

Why wouldn’t you need life insurance? Could be because your kids have grown up or you’ve paid off your debts. In any case, no one’s financially dependent on you and you have no large outstanding loans.

How does whole life insurance work in Canada?

When you buy whole life insurance, you’re locking in a premium and benefit amount for the rest of your life. 

This means that regardless of your age, you’ll pay the same premiums. And regardless of when you pass, the payout to your loved ones will be the same. 

Whole life insurance tends to be expensive; 5 to 15 times more expensive than a comparable term life insurance policy.

So, where’s the money go?

The insurance company takes your policy premiums and splits them three ways: 

  1. One portion goes to your death benefit.
  2. A second portion goes towards fees.
  3. The remaining portion goes towards a cash value component that is invested, tax-deferred, on your behalf. 
Graph detailing whole life inruance cash value for article about whole life insurance Canada

Because the chances of you dying when you are young are low and the insurance company is not likely to have to pay out your policy, the amount that goes towards your death benefit is lower when you are younger and increases when you are older. 

If you cancel your policy at any time, you’ll receive the cash value that has accumulated, minus any penalties and fees. 

Chart detailing whole life insurance versus investing for article about whole life insurance Canada

You may think of whole life insurance as a forced savings account but it can be a long time before you see any benefit and you can face high fees for canceling the policy in order to access that cash.  

In the United States, it’s possible to sell your whole life insurance policy to a third party for market value. That third party then becomes the beneficiary of your policy when you die. This is called a viatical settlement. 

Viatical settlements are illegal in Canada, though. 

Is whole life insurance worth it in Canada?

Whole life insurance is expensive and can cost eight to ten times more than term life insurance, depending on your age. 

This can really eat into a young family’s budget and especially when the policy itself doesn’t provide benefits to the typical family. 

That’s because coverage is most important when you have dependents or a lot of debt, like student debt or a mortgage. Once you get older and your kids become financially dependent there’s less of a need for a big payout to be available to your loved ones.

Mother and daughter reading book together while wrapped in blankets for article about whole life insurance Canada

 While the investment component of whole life insurance is alluring, most people will do better saving the money on the premiums and investing it on their own in an RRSP or TFSA.

1. Advantages of whole life insurance in Canada

While most young families don’t need whole life insurance, there are some benefits to whole life insurance in Canada. 

  • The policy never expires and will cover you until you die, regardless of age.
  • Your premiums stay the same throughout your life and don’t get higher as you get older.
  • There is a cash saving component that can be used down the road to pay your premiums or can be borrowed against, for example, in an emergency. 
  • For some high-net-worth individuals who have maxed out other savings vehicles like TFSAs, whole life insurance can be useful as an investment vehicle.

2. Disadvantages of whole life insurance in Canada

Whole life insurance can be beneficial for certain high-income earners, but there are a number of disadvantages for the average Canadian family.

  • The cost: whole life insurance is eight to ten times more expensive than term life insurance.
  • You’re paying now for insurance you may not need when you’re older.
  • It takes a number of years to see the benefits of the cash savings portion of the policy and if you cancel before that you likely won’t get back what you put in.
  • While it does offer a tax-deferred vehicle for savings, other products, like RRSPs and TFSAs, are more flexible and provide better value

Whole life insurance versus term life insurance in Canada

Here are the primary differences between whole life insurance and term life insurance. With term life insurance you still get a guaranteed death benefit and a locked-in rate, but the premiums are lower.

Term life insurance Whole life insurance
Low prices
Choice of policy length
Never expires
Rates locked in
Guaranteed death benefit
Accumulates cash value

How much does whole life insurance cost in Canada?

Both term and whole life insurance premiums vary based on age and lived gender (with women’s premiums being slightly lower than men’s premiums). The advantage of whole life insurance premiums is that the amount you pay is locked in for life. 

On the other hand, if you want more insurance after your term life insurance policy expires you might pay a higher premium because you’ve aged, however you may need a smaller coverage amount. 

It will still be less than the premium payment you would be paying for whole life insurance. 

$250,000 20-year term life insurance $250,000 whole life insurance
Male, aged 30 $18/month $135/month
Female, aged 30 $15/month $121/month
Male, aged 40 $28/month $204/month
Female, aged 40 $22/month $178/month
Male, aged 50 $72/month $327/month
Female, aged 50 $51/month $279/month

When you compare across the board, you can see that term life insurance is the more cost-effective option for Canadian families. PolicyMe has all the cut unnecessary steps and expenses to offer customers the most affordable policies, with the same quality of coverage.

Best whole life insurance companies in Canada

For most Canadian families, term life insurance policies make the most sense. 

That’s because they’re the most cost-effective way of making sure your family is financially protected if you die and don’t lock you into paying high premiums when you’re older and may not need life insurance anymore. 

Some people, like high-net-worth individuals who have maxed out other investments, may want to consider whole life insurance.  For whole life insurance policies, we’d recommend you reach out to insurance providers, such as Sunlife or Manulife, for a range of permanent life insurance options.

Read reviews of the best life insurance providers in Canada here.

Real-life example: shopping for whole life insurance

Lorne is a 30-year-old first-time dad in Winnipeg, Manitoba. He wants his wife and child to have financial security in the event he passes away and is deciding whether he should purchase whole life or term life insurance policy. 

Father and son fist-bumping for article about whole life insurance in Canada

The premiums for a $250,000 whole life policy would cost him $135/month, which on the surface seems like a good deal because if a 50-year old man was buying the same policy, he would have to pay $279 per month in premiums. 

However, there are a lot of expenses when you have a kid, and Lorne could get the same coverage with a 20-year term life insurance policy for $18/month, saving $117/month that can go towards clothing, dance classes, and family dinners out. 

If, at age 50, his term policy expires and he decides he still needs insurance, he can purchase another policy and the premium would still be lower than the $135/month for whole life insurance. 

With PolicyMe you’ll never over-pay for your premiums, leaving cash in your budget every month for things you really need. 

Can you cash out your whole life insurance policy in Canada?

In short, yes. There are a few ways you can get the cash value out of your whole life insurance policy in Canada. 

First, you can get the cash value back if you cancel your policy, minus any fees or penalties for cancelling. Because the amount was in a tax-sheltered account, you also need to pay tax on a portion of the amount.

You can also take out a loan from your insurer and use your policy as collateral. 

In summary: Most Canadian families do not need whole life insurance

For the typical Canadian family, whole life insurance is expensive and doesn’t add a lot of value. 

If you still feel you need insurance when your policy expires, you can take out another policy. Even though the rates will be higher, you would have had lower premiums up until that point and had the opportunity to make better investments with the savings. 

We believe in empowering parents with dependable knowledge that prioritize your family’s best-interest, so that you can feel confident that you’re making the right decisions. Use the life insurance calculator to get your quote right away.

Laura McKay

COO & Co-Founder

Laura brings 7 years of experience working in insurance & strategic operations as a management consultant at Oliver Wyman, after experiences at Manulife and Munich Re. In 2017, she launched a successful initiative for the World Economic Forum focused on innovation in insurance, working closely with insurers, tech pioneers, and policy-makers.

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