Matt Hands, Business Director, 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.
Whole life insurance is one of the most popular types of life insurance coverage in Canada, being perhaps a 'standard' permanent life insurance plan. Whole life insurance never expires, so is great for people who want to maintain their life insurance coverage into their old age.
Whether or not whole life insurance is the right option for you depends on a few factors, though. Learn more about whole life insurance below, and compare some quotes when you're ready.
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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.
You won't know the cost of whole life insurance for you until you receive a quote. Get multiple quotes today so you can make the best decision for you and your family.start my quote
There are three main differences between whole and universal life insurance policies: premiums, benefits, and investments. The death benefit and premiums of a whole life insurance policy are fixed forever, while universal premiums and benefits can change over time. Additionally, the investment component of universal life insurance is much more flexible than whole life insurance.
- 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.
- 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.
- 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.
Whole life insurance is a 'set it and forget 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 within the beginning, and know they want life insurance for the rest of their lives. Term life insurance only lasts a certain number of years, 5 or 10 say, and is great for people who only want life insurance for a little while. Term life insurance premiums are generally cheaper than whole life insurance premiums when you're young, but more expensive when you're older.
Whole life insurance is one of the major categories of coverage in Canada, and anyone getting life insurance needs to give it some serious thought. However, whether whole life insurance is the right option for you is not a simple question! Let me try and give you a little guidance.
When you need coverage for a limited period of time, such as the life of your mortgage, or until your children grow up, term life insurance is probably the best bet. However, if you want your family to receive a death benefit when you die, even in your old age, then whole life insurance is the way to go.
Whole life insurance and estate planning
The other main use of whole life insurance is for estate planning. When someone dies in Canada without a partner, they are assumed to have disposed of all their wordly possessions at the market price, moments before they pass away. As a result, capital gains taxes will be payable, and their estate will need to submit a final tax return and pay these taxes.
If you have sizeable assets that have increased in value, like shares in a business or an investment property, this gain in value will be taxed when you die. Without a life insurance death benefit, that could result in your family having to sell these assets in order to pay the tax bill. Whole life insurance is the perfect product to protect your family from that occurring, allowing them to inherit the assets in full.
A lifelong investment
Of course, whole life insurance also gives you a cash surrender value or CSV. This is how much you would be paid if you surrendered the policy, but it's also an asset you can borrow against, instead of taking out an unsecured line of credit. That's a useful feature you won't get from a term life insurance policy.
However, if you are primarily thinking about whole life insurance as a way to make long-term investments for your family, I'd highly recommended you look into universal life insurance as well. It won't always be a better option, but universal coverage has some serious advantages in this space.
The bottom line
As with all big financial decisions, the best thing you can do is educate yourself, and shop around. You've already done a lot of work on the education part, so the next step is to compare quotes for life insurance. Whatever you choose, I hope it serves you well!
Ratehub.ca is not affiliated or otherwise associated with Hub International Canada.
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Matt started his professional career at CARPROOF where he honed his marketing and analytical skills for over 3 years. Matt then took his wealth of experience to Ratehub.ca’s Toronto offices, working with insurance providers, agents, and brokers to grow and expand the Insurance business unit. He is a thought leader in the community and a valuable insurance resource to respected publications like the Globe & Mail, Toronto Star, Huffington Post, Yahoo News, and 680 news radio in Toronto.read linkedin bio
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