Guide to Permanent Life Insurance in Canada

What is permanent life insurance?

Permanent life insurance is a type of life insurance that provides lifelong coverage and a tax-free death benefit that pays out when the insured person passes away. 

Unlike term life insurance, which offers coverage for a set period, permanent life insurance does not expire and lasts your entire life as long as the policy remains active. The main caveat is that permanent policies are generally more expensive and complex than term policies, so it's recommended only for individuals who truly require coverage that lasts an entire lifetime. 

The cash value in many permanent policies (i.e. whole life or universal life) can be tax-advantaged, as growth is generally tax-deferred while it remains inside the policy. Some people use this feature as part of a long-term retirement income or estate plan, but it can be costly and isn’t a replacement for registered accounts like an RRSP or a TFSA.

Who is permanent life insurance for?

Permanent coverage can be 5 to 15 times more expensive than term life insurance, so you should only consider a permanent plan if lifelong protection aligns with your circumstances and goals. 

Here are the most common situations where permanent life insurance could make sense:

• Lifelong dependents: Permanent coverage can help protect your lifelong dependents, such as a child with a disability or an adult family member who relies on you for financial support. 
• Estate planning needs: High-net-worth individuals may use permanent life insurance to help cover capital gains taxes on properties, businesses, or investment portfolios.
• Business succession: Business owners can dedicate the payout of their permanent policy to fund the continuation of their business.

Permanent life insurance may not be the best fit for your coverage needs, especially if you’re looking for an affordable policy that mainly protects you during the years when your financial responsibilities are high (e.g., while paying off a mortgage or supporting your dependent children). 

Outside of these cases, term life insurance is usually the simpler and more affordable choice. Term coverage can be tailored to the years when your family needs coverage the most. The money you save from paying lower premiums can give you more financial flexibility outside of your policy for everyday needs.
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Are permanent policies a good investment solution?

Some Canadians consider permanent life insurance because it offers a tax-deferred cash value or investment component. But, while it sounds appealing, the fees are typically high, and the returns are often lower than other investment options (e.g., TFSAs or RRSPs). In the end, you may end up paying more in premiums than the policy’s worth.

Because every insurance company structures permanent policies differently, it’s important to compare more than just price. Look at policy guarantees, fees, and flexibility across each life insurance company you’re considering, especially if cash value growth or premium structure is part of your decision.

When permanent life insurance is a good fit: example scenarios

Example scenario 1: Mariah

Mariah is a 45-year-old parent with a 17-year-old son. Her son has a lifelong disability and will rely on her for financial support for as long as she lives.

Since her financial responsibilities won’t end when her mortgage is paid off or when her son reaches adulthood, she can get permanent life insurance coverage that will last until she passes away.
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The verdict?

In this case, a permanent life insurance policy will provide her son with a tax-free payout, regardless of when she passes. Her policy’s death benefit can be used to cover his housing, personal care and more, ensuring he’s protected for years to come.

Example scenario 2: Kabir

Kabir is a 56-year old business owner who plans to leave his family cottage and company shares to his children.

Kabir’s assets are mostly intangible (not cash), and there may be significant tax bills to transfer those assets. Permanent coverage can provide liquidity to his heirs so they do not have to sell the assets just to pay the estate taxes and settlement costs.
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The verdict?

Permanent life insurance could help Kabir protect the legacy he's built. It gives his estate access to cash when it's needed, helping his children keep the assets instead of selling them to cover taxes and other estate costs.

When permanent life insurance is not a good fit: example scenarios

Example scenario 1: Alexi

Alexi is a 32-year-old husband and father with a new mortgage. He wants to ensure that his wife and young kids can cover living expenses and pay off the mortgage if he were to pass away. 

Alexi doesn’t need lifelong coverage since his financial needs will decrease as his mortgage is paid down and his kids become financially independent. He and his wife primarily need short-term financial protection for the next couple of decades while his responsibilities are at their highest. 
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The verdict?

For Alexi, a 20-year term life insurance is the best fit. Term life provides the protection his family needs at an affordable cost, opposed to permanent life insurance, which could cost significantly more for an amount of coverage he likely won’t need later in life. The money Alexi saves from choosing term can be invested into his mortgage, retirement savings, or an RESP for his children.

Example scenario 2: Brianma

Brianna is a 72-year-old retiree who has paid off her home and has substantial savings. Her two kids are now grown and financially independent.

This senior has plenty of money in her estate to cover funeral costs, outstanding bills, and leave an inheritance to her adult children. For Brianna, life insurance would be a costly mistake. No one is depending on her income and her assets can cover her costs after death. 
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The verdict?

Permanent life insurance likely isn't necessary for Brianna. Since she has no financial dependents and enough savings to cover her final expenses and leave an inheritance, paying ongoing premiums may not provide much additional value. In her case, keeping her savings invested or using them during retirement may be the more practical option.

Types of permanent life insurance

There are three main types of permanent life insurance products:

• Whole life insurance
• Universal life insurance
• Term-to-100 life insurance

Each policy structure offers lifetime coverage, but there are a few key differences in their savings features, flexibility, risk, and cost. Here’s a rundown of each.

Whole life insurance

A whole life insurance policy provides lifelong coverage and a guaranteed payout when you pass, but it’s unique among other permanent policies:

• Fixed premiums: Whole life premium payments are typically fixed.
• Cash value component: Whole life policies typically include a guaranteed cash value component that grows over time. 
• Borrowing: The policyholder may be able to borrow against the cash value of their whole life policy.
• Cost: It’s generally the most expensive type of permanent policy, even though whole life insurance is often described as a “low-risk” permanent coverage option.
• Dividends: Participating whole life policies may include optional dividends.

Whole life policies often come with guaranteed premiums, which can make long-term budgeting easier.
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Who is whole life insurance best for?

Whole life insurance is best suited for individuals with lifelong financial responsibilities or estate-planning needs. For example, parents with lifelong dependent children or high-net-worth individuals looking to cover future estate taxes may benefit the most from a whole life policy. But for most families, term life insurance may be a wiser and more budget-conscious choice.

Universal life insurance

Similar to whole life insurance, universal life insurance offers lifelong coverage and a guaranteed payout, no matter when you pass away—but premiums and cash value options differ.

Here are the main features that differentiate universal life insurance from whole life insurance: 

• Flexible premiums: Universal life premiums are flexible not fixed, meaning you may be able to adjust when and how much you pay.
• Cash value flexibility: Universal plans usually offer multiple investment options for the cash value component. So, policyholders have more flexibility in where their cash value is invested, but growth isn’t guaranteed because it depends on how the investments perform.
• Borrowing: Policyholders can borrow against the cash value accumulated in a universal life policy, but this is less common and often riskier than with whole life since growth is not guaranteed. 
• Cost: Universal life policies are generally less expensive than whole life policies, but they usually cost more than Term-to-100 coverage.

Because premiums can be flexible, the amount and timing of life insurance premiums may change over a long period of time, depending on how the policy is funded and how the cash value performs.
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Who is universal life insurance best for?

Universal life insurance may be a worthwhile consideration for high-net-worth individuals or business owners seeking lifelong coverage with flexibility and control in how they pay their premiums and invest their cash value. You’ll need to be comfortable with the market’s risks since returns aren’t guaranteed. This may not be ideal if you’re looking for simple and straightforward coverage.

Term-to-100 life insurance

Term-to-100 (T100) life insurance is a simpler type of permanent life coverage that lasts for life, but it does not include a savings or investment component like whole life or universal life policies. Here are the notable details that make up term-to-100 policies:

• Premiums: Term-to-100 premiums stop at age 100, but coverage continues until you pass.
• No cash value: This type of policy doesn’t offer a cash value or investment component.
• Level premiums: Premiums stay the same throughout the policy’s life.
• Cost: Term-to-100 coverage is generally cheaper than whole life or universal life insurance, but it’s still more expensive than term life coverage.
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Who is T100 insurance best for?

Term-to-100 life insurance may be a good fit for individuals who want affordable, straightforward permanent coverage without the worry of dividends, investments, or policy loans. It’s just pure, lifelong insurance coverage that can provide for estate planning or final expenses. But term-to-100 coverage is still more expensive than term life insurance, so a term policy may be a better fit if you don’t require lifelong coverage.

Pros & cons of permanent life insurance

Permanent life insurance has some upsides and downsides, mostly to do with cost and coverage:

Pros of permanent life insurance:

• Lifelong coverage: Your beneficiaries get a guaranteed payout no matter when you die (if your premiums are paid).
• Financial planning support: The payout can help cover your final estate taxes, which cannot be paid off earlier in life. 
• Protects lifelong dependents: Permanent coverage can provide financial security if you support someone with a disability or other lifelong needs.
• Savings components: Whole and universal life insurance policies include a tax-deferred cash value component that can be borrowed against or used later in life.

Cons of permanent life insurance:

• High cost: Permanent policies cost 5–15x more than term life coverage, which many families simply cannot afford.
• Risk of over-coverage: A costly permanent policy is not necessary if your dependents will eventually stop relying on you financially.
• Less financial flexibility: Higher premiums mean less money in your pocket for saving, investing, and paying off debts.

“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.” – Erik Heidebrecht, Licensed Insurance Advisor

Permanent vs. term life insurance

If you’re comparing permanent and term life insurance, here’s a comparison.

The truth is that term life insurance is a better fit for most people. You enjoy plenty of protection with more flexibility and no overspending on unnecessary lifelong coverage.

Cost = Term is almost always cheaper.

• Permanent: 5-15x more expensive ($100 to $300 per month)
• Term: More affordable ($20 to $30 per month)

Coverage = Term covers you for as long as you decide (but not for life).

• Permanent: Lifelong coverage
• Term: A set period (5 to 40 years) based on the time when you have financial responsibilities, then it expires (or you can renew or convert)

Flexibility = Term is simpler and more customizable (but you can’t borrow against it).

• Permanent: Less. You can borrow against some policies and you may be able to adjust the death benefit, but it’s a lifelong policy that is otherwise fixed.
• Term: More. Choose a custom term between 5 and 40 years that matches your family’s timeline

Financial freedom = Term keeps more money in your pocket

• Permanent: Higher monthly premiums must be paid for life, which can interfere with retirement savings and financial freedom in old age.
• Term: Higher death benefits but lower premiums can free up money for other things like your children’s education, your mortgage, or retirement savings.

Overall, permanent life insurance can make sense in very specific situations, but term coverage is often the smarter and more affordable choice for the average household.

Alternative to permanent life insurance

If you don't need lifelong coverage, term life insurance can be a better choice. It provides protection for a set period, like 10, 20, or 30 years, while your financial obligations are at their highest.

For most Canadians, term life insurance offers the right balance of affordability and coverage. You can use it to help protect your family's income, cover a mortgage, pay off debts, or support your children until they become financially independent.
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If you're unsure whether you'll need lifelong coverage in the future, look for a convertible term life insurance policy. It gives you the option to switch to permanent life insurance later, without taking another medical exam, as long as you convert before your policy's deadline.

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Note: Convertibility is not the same as renewability

Convert: You transform a term policy into a permanent policy with lifelong coverage.
Once you convert, the policy guarantees a tax-free lump sum payout to your beneficiaries whenever you pass away. This means your dependents don’t have to wait for retirement savings to mature.
Renew: You buy a new term policy with new premiums from the same company (but no medical exam is required).
Renewable policies allow you to extend coverage temporarily if you still have debts and dependents relying on you past the date you originally predicted when your coverage will expire.

How much does permanent life insurance cost?

Life insurance quotes for permanent coverage can start between $100 to $300 per month, depending on the age, policy type, and coverage amount. You have to pay premiums for life, every single month.

Permanent life insurance is about 5 to 15 times more expensive than term life insurance. 

^{* Monthly premiums based on a non-smoking female of average health for $500,000 in coverage. Term premiums reflect average rate for a 20-year-term.}

Common misconceptions about permanent life insurance

Permanent life insurance can sound appealing, but there are a few misconceptions about its value that you need to understand before you make your decision. 

Here are three common permanent life insurance myths — and the real facts.

Myth 1: Permanent life insurance is always a good investment

It’s true that permanent policies include a cash value component that typically grows tax-deferred at a guaranteed rate—but this does not mean the returns are high. In fact, most cash value returns are modest, and you may need to pay tax if you withdraw from the cash value or if interest accumulates from a loan. 

If you want to grow your money, you’re probably better off choosing a traditional investment vehicle like a TFSA or RRSP alongside an affordable term life policy.

Myth 2: A guaranteed payout makes permanent life insurance more valuable

Permanent policies do offer guaranteed payouts, but there’s a catch.

Permanent premiums are so high (up to 15 times more than term life) that some policyholders end up paying close to or even higher than their death benefit amount by the time the policy pays out. 

In terms of value, a term life insurance policy can help keep monthly costs down, giving you coverage but also the flexibility to invest your savings for a return with higher value.

Myth 3: Cash value is “free money”

You can borrow or withdraw from the cash value in a permanent policy, but it will cost you—just like any other loan.

It’s dangerous to think of cash value as “free money.” Borrowing from your cash value can reduce your coverage, create a tax bill, or even cancel your policy if mismanaged. 

If the debt exceeds your cash value, your policy can collapse, leaving you with no coverage. Withdrawals above a policy’s adjusted cost basis are taxable, as are any outstanding loan balances if your policy lapses or is surrendered.

How to decide if permanent life insurance is worth it for you

Permanent coverage is right for some Canadians, but it’s not for everyone. 

Here are four questions to 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

FAQ: Permanent life insurance in Canada