Is Permanent Life Insurance Worth It? Not for Most
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Is permanent life insurance worth it?
For many Canadians, permanent life insurance can be hard to justify based on cost alone. Premiums often extend well beyond the years most people actually need coverage and policies tend to be significantly more expensive than term life insurance for a similar payout.
But permanent life insurance can make sense in certain situations; especially for those with lifelong dependents, complex estate planning needs, or a specific long-term financial strategy.
- The appeal: A permanent life insurance policy offers lifelong coverage and a guaranteed payout, with some policies also including a cash value component.
- The reality: Lifelong policies are an expensive way to get coverage and an underwhelming way to build wealth.
In other words, with permanent life insurance, it’s easy to end up paying for more policy than you really need.
If your goal is to offer financial protection for your loved ones while you have a mortgage or dependents, you’ll probably find more affordable (and more flexible) coverage with a term life insurance policy.
What is permanent life insurance?
Permanent life insurance is a lifelong insurance policy that typically builds cash value over time and provides a guaranteed death benefit payout upon your death.
Unlike term life insurance, permanent life insurance policies never expire. There are four types of permanent life insurance (which we’ll explore in more details below): T100, whole life insurance, universal life insurance, final expense insurance, and survivorship insurance.
Learn more: How does life insurance work?
Why permanent life insurance probably isn’t right for you
Generally speaking, most people don’t require the extensive, long-lasting coverage that permanent life insurance offers.
Permanent life insurance is also very expensive; higher premiums cost 5 to 15 times as much as term life insurance. You can secure the coverage you need at a fraction of the cost with a term policy.
“If you buy an expensive permanent insurance plan, it’s going to take money away from saving for a down payment, which might be more important. Maybe instead, you consider a cheaper term insurance policy that will get you what you want from an insurance perspective without jeopardizing savings for retirement, for a house, or whatever it may be.”
“If you buy an expensive permanent insurance plan, it’s going to take money away from saving for a down payment, which might be more important. Maybe instead, you consider a cheaper term insurance policy that will get you what you want from an insurance perspective without jeopardizing savings for retirement, for a house, or whatever it may be.”
“Cash value” isn’t that valuable
Proponents of permanent life insurance tout the policy’s cash value as a major benefit, but it may not be as valuable as it seems. Here why:
- Cash value takes years to grow. The cash value of your policy grows over time but returns are typically lower than you might achieve with a traditional investment account, like a TFSA, RRSP, or even high-yield savings account.
- It can be difficult to access. Sure, you can borrow against your cash value for withdrawals or borrowing money, but you may be on the hook for taxes and it could reduce the amount of the death benefit. If you cancel the policy early, you’ll get very little back compared to what you put in.
For most people, it’s best to keep insurance and investing separate. A term life insurance policy offers medium-term financial protection and your investment accounts allow your savings to grow over the long term with greater flexibility (and higher returns).
Term life insurance is the best choice for most Canadians
Most Canadians have temporary financial responsibilities—such as a mortgage or supporting dependent children—that life insurance should help protect. A term life policy offers affordable coverage during a set number of years and gives you the flexibility to reduce or end your coverage once those obligations are no longer a concern.
Who should get permanent life insurance?
There are two groups of people for whom a permanent life policy might be the best life insurance product, despite the high premium payments.
If you fall into the high-earner category, you may want to consider a permanent life insurance policy once you’ve maximized your TFSA and RRSP contribution room and you have unregistered assets. A permanent policy offers an opportunity to take advantage of tax-deferred compound interest beyond your retirement accounts.
A permanent life insurance policy can also make sense if you’re doing estate planning and want to cover funeral costs, especially when you compare term to whole life. You’re not thinking about a specific period and you pay premiums for your after-life personal finance goals. Cash value growth is a bonus.
“Generally between the ages of 50 and 60, where you're coming to the end of your first term and considering whether to get term into retirement age or opt in for a more expensive whole-life plan that's going to act as final expense coverage whenever you pass away. The need for insurance is not significant but you’re looking for final expense coverage.”
“Generally between the ages of 50 and 60, where you're coming to the end of your first term and considering whether to get term into retirement age or opt in for a more expensive whole-life plan that's going to act as final expense coverage whenever you pass away. The need for insurance is not significant but you’re looking for final expense coverage.”/p>
Broadly speaking, these are the two major use cases where permanent coverage might be worth it for your beneficiaries.
Term vs. permanent life insurance
Both term and permanent life insurance policies offer financial protection for your loved ones if you die, but there are some significant differences you need to consider.
Both types of policies allow you to choose the amount of coverage that best suits your financial plan. But permanent life insurance is substantially more expensive than term life insurance.
Beware: It’s easy to end up underinsured with permanent coverage since the cost is so high. It’s tempting to purchase less coverage than you really need in an effort to keep premiums affordable.
If you’re looking for affordable coverage that provides financial security while you have major financial obligations, term insurance is usually the best choice, but there are exceptions.
Pros & cons of permanent life insurance
While we believe that permanent life insurance is unnecessary for most Canadians, it does have some benefits:
How to decide if permanent life insurance is worth it for you
It’s right for some Canadians, but not for everyone. These four questions can help you determine if permanent life insurance is a good fit for you and your financial goals.
1. Think about your dependents: are they lifelong?
Most children will eventually become financially independent, but some people may be relying on your income or care for the rest of their life, like a disabled child or older relative. In this case, permanent coverage can provide lasting financial support.
I have lifelong dependents = may be worth it
2. Consider investment options: have you maxed out your TFSA and RRSP?
Investment accounts like a TFSA and RRSP have strong tax advantages and higher growth potential than permanent life insurance. If you still have room in your registered accounts, consider contributing there first instead of permanent insurance to grow your family’s wealth.
I have room in registered accounts = not worth it
3. After your death: what financial goals do you have?
You may owe final taxes after your passing. You may want to equalize inheritances or leave a legacy by donating to charity. Permanent life insurance is a tool that can help with estate planning, but you should speak to a financial advisor about the broad scope of your wealth and goals.
I have wealth transfer concerns = may be worth it
4. Today’s budget: what premiums can you afford?
Permanent policies can cost hundreds of dollars per month, and you must pay that price every single month until you pass away to keep the policy active. Term policies are far cheaper. Coverage should not strain your monthly budget.
My budget is under $50/month = not worth it
Types of permanent life insurance
There are four types of permanent coverage, each one with unique features and suitable for unique situations. Here’s a rundown of your permanent life insurance options.
Whole life insurance
What it is: A whole life insurance policy offers coverage for your entire life, with fixed premiums and a guaranteed tax-free death benefit to your beneficiaries upon your death. It includes a cash value component that grows over time, and while the value is typically low, you may be able to borrow against it.
When it makes sense: If you have lifelong dependents that you need to care for, or you’ve maximized contributions to your TFSA and RRSP, a whole life insurance policy might be a good choice.
Term 100 (T100) insurance
What it is: Term 100 is a type of permanent life insurance that provides coverage for your entire life, with premiums that typically stay level until age 100. Unlike some other permanent policies, T100 usually doesn’t include a cash value or investment component. It’s designed purely to provide a guaranteed payout when you pass away.
When it makes sense: T100 can be a good fit if you want lifelong coverage without the added cost or complexity of cash value features. It may appeal to those focused on leaving a guaranteed payout for final expenses, estate planning, or dependents who will need long-term financial support.
Universal life insurance
What it is: Universal life insurance is similar to whole life, in that it offers lifetime coverage. But you won’t get fixed premiums; instead, your premiums are flexible and based on the cash value that you’ve built up.
When it makes sense: This type of insurance might be best suited to those who need lifelong coverage but want greater control over when and how much they pay. You’ll need to have higher tolerance for risk, but in exchange you’ll enjoy a bit more flexibility.
Final expense insurance
What it is: Sometimes called burial insurance or funeral insurance, final expense insurance is a permanent policy that pays a small death benefit (typically between $5,000 and $50,000). This policy allows your beneficiaries to cover the cost of a funeral and other final expenses after your death.
When it makes sense: A final expense policy might be a good choice if you can’t qualify for another type of life insurance and want to cover final expenses. If you need money for your beneficiaries to cover more than that (like income replacement), you should choose something else.
Survivorship insurance
What it is: Survivorship insurance is also known as joint or second-to-die life insurance. It offers coverage for two people, and once they both pass away, the policy pays the death benefit to the beneficiaries. It’s typically less expensive than purchasing two separate policies and can be easier to qualify for, since the payout only happens once both policyholders have passed.
When it makes sense: This type of whole life policy might be a good idea if you’re concerned about estate taxes and final expenses. It can also be helpful if you want to leave a legacy or equalize inheritances among those inheriting your estate.
Bottom line: is permanent life insurance worth it?
For most people, permanent life insurance may not be worth it.
The cost is on the pricier side and the coverage may be unnecessary for most Canadians who just want income replacement for their families in case of untimely passing. For this goal, term insurance is a simpler and more affordable fit, covering real-world needs like mortgage protection and child-rearing expenses for working families.
But in specific scenarios, permanent life insurance is worth the cost and rigidity to provide care for lifelong dependents or plan ahead for complex wealth transfer and estate planning.
FAQs: permanent life insurance in Canada
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.