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Whole life insurance

Whole life insurance is one of the most common types of life insurance in Canada, but it's not for everyone.

What is whole life insuranceCompare quotes today

Whole life insurance, compared

Permanent life insurance is one of the most popular types of life insurance coverage in Canada. Of those, whole life insurance might be considered the 'standard' permanent life insurance plan.

What is Whole Life Insurance?

Whole life is a type of permanent life insurance, meaning it lasts for the duration of your life, as long as you continue paying your premiums on time. Because they are virtually guaranteed to pay out eventually, whole life insurance premiums are more expensive than the premiums for comparable term life insurance cover would be. However, there are other benefits, including the accumulation of a cash value alongside your policy.

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Features of whole life insurance

Aside from covering you for your entire life, whole life insurance has a number of other key features that set it apart from other products.

Steady premiums

The premiums in whole life insurance stay level for the entire duration of the policy. This means that they start at a higher rate than term life policies, but will eventually be lower at later stages of life, as term premiums increase each time you renew your policy. There are some whole life policies that will allow you to pay premiums, sometimes increased, for a set period of years or to a certain age, with no more premiums required after that.

Fixed investment portion

Whole life insurance, along with universal life insurance, has an investment component, separate from your insurance component. This is called a participating policy, meaning you may participate in the profits of the insurance company through investment. In whole life, the insurer decides how the investment component is invested, but it is typically a steady rate of return with low volatility. The investments are in a tax shelter, meaning all investment income earned in a whole life insurance policy is tax-free when left to a beneficiary. (The investment income is taxed if borrowed from the policy.)

Cash value

Also, permanent policies feature a cash value, also called a “cash surrender value” or CSV, which grows the longer you’ve had the policy. This amount exists if you want to borrow against your policy or cancel it to redeem the CSV, also called “surrendering.” This amount, once withdrawn, is not shielded from tax, so surrendering your policy to collect that amount can lead to a substantial chunk taken away from your insurance payout that you’d have worked for a long time to earn. There may also be other consequences, like having to repay the borrowed amount back into your policy within a set time, so be sure to understand your policy. Most policies will not have this option available from day one, but rather after five or ten years of paying into the policy. Many insurers also charge high surrender fees that gradually decrease over time.

Whole life insurance vs universal life insurance

There are three main differences between whole and universal life insurance policies:
  1. Premiums. Whole life insurance premiums stay the same for the entire duration of the policy, whereas universal premiums can be negotiated higher or lower, depending on the company and your policy.
  2. Death Benefit. Because the premiums of universal life can change, so can the amount of death benefit. This is reflective of the amount of cash value in the policy at the time of death and can be negotiated before death with the insurance company. The death benefit of whole life insurance grows with the investment portion, but can be predicted more easily.
  3. Investments. Although both whole and universal policies have an investment component, only in universal can you decide what the investments consist of. In whole life insurance, the company decides upon the investments.
Learn more here: Whole life insurance vs universal life insurance.

Why should I buy whole life insurance over another policy?

Whole life insurance is a “get it and forget about it” policy—your premiums stay the same and no change is needed at any time. This is best for people who want simplicity, have some money to play with in the beginning, and know they want life insurance for the rest of their lives.

Where to buy whole life insurance

So, who offers the best whole life insurance policy? Allof the dedicated life insurance companies offer some form of whole life insurance, but smaller companies, or insurance companies owned by a bank, may only offer term life insurance. Most whole life policies are sold by Canada’s big three life insurance companies: Sun Life, Great West Life, or Manulife. The big three life insurance companies also offer the most flexible whole life insurance products, as well as universal life insurance policies. If you’re interested in the bank-owned providers, you’ll may only be able to get a basic form of whole life insurance, like term-to-100 or guaranteed life insurance. Many of the banks - even the big five - don’t offer participating whole life policies, or even policies that accumulate a CSV. See our articles on BMO insurance, RBC insurance, and TD Bank insurance to learn more.
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