Matt Hands, VP, Insurance and MoneySense
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. So when you pass away, your beneficiaries will receive a death benefit from your insurer. Because the policy is virtually guaranteed to pay out eventually, whole life insurance premiums are more expensive than the premiums for term life insurance. And aside from the payout, there are other advantages, including the accumulation of a cash value within your policy.
Whole life insurance is one of the most popular types of life insurance coverage in Canada, perhaps being a 'standard' permanent life insurance plan. These plans never expire, so it's a great option for people who want to maintain their life insurance coverage during their old age.
Whether or not whole life insurance is the right option for you depends on a few factors, though – so learn more about whole life policies with us below, and compare your own personalized life insurance quotes once you're ready.
The premiums on a whole life policy are generally much more expensive than that of a term life policy. But while most people won't need coverage for their entire lifetime, a whole life plan can be worth it, depending on the needs of your specific situation – here are three examples of when permanent life insurance coverage could be a good idea.
If you want to build a trust fund for future generations, a whole life policy can be just what you need.
A whole life policy is one tax-advantaged way to leave your beneficiaries with a large sum of money.
As a business co-owner, whole life insurance can provide the funds needed for a buyout upon death.
Whole life insurance plans, along with universal life insurance plans, have an investment component, separate from your insurance component. With a whole life policy, the insurer decides how the investment component is allocated, but it's typically a steady rate of return with low volatility. The investments are also in a tax shelter, meaning all investment income earned in a whole life insurance policy is tax-free when left to a beneficiary. However, if you want to borrow money from the policy during your lifetime, the investment income will be taxed.
In a participating policy, you may participate in the profits of the insurance company through dividends. In a non-participating policy, however, you won't receive dividends, but premiums tend to be lower because of this reason.
Permanent life policies feature a cash value – also known as a cash surrender value or CSV – which grows as the time you've had your policy increases. This amount exists if you ever want to borrow against your policy or cancel it to redeem the CSV, also known as “surrendering.” Once withdrawn, the money will not be shielded from taxes, so surrendering your policy to collect this amount can lead to a large chunk taken away from your insurance payout. There may also be other consequences, like having to repay the borrowed amount back into your policy within a set time, so be sure you understand your policy before making any big decisions.
Most policies will not have this option available from day one, but rather after five or ten years of paying into the policy. Also, most life insurers charge high surrender fees that gradually decrease over time, but despite this the actual cash value is still considered an advantage to a whole life policy as it can provide funds if you ever find yourself in need of an emergency fund.
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While the cost of whole life insurance will differ depending on the policyholder's individualized profile, here are a few sample quotes we pulled in Janaury 2024. For a more thorough analysis of pricing, read our page on how life insurance policy pricing works.
Whole life policy with $150,000 coverage
for a 40-year-old, non-smoking male
Whole life policy with $500,000 coverage
for a 35-year-old, non-smoking female
Whole life policy with $300,000 coverage
for a 50-year-old, non-smoking male
The older you are, the more expensive your whole life premiums will be. But keep in mind that locking in a low rate early can also mean you're making more payments during your lifetime.
When it comes to buying life insurance, males generally pay higher rates. This is due to the statistical risk factors of life expectancy.
Life insurance companies like to see low-risk policyholders, so pre-existing conditions, smoking, substance abuse, and a complicated family medical history will lead to higher whole life insurance rates.
Not all whole life policies require premiums to be paid until death. If you choose to accelerate your payment plan (e.g. pay off in 10 years), expect your rate to be much higher.
While the death benefit on a whole policy isn't fixed, selecting a higher face value or a higher guaranteed return rate will lead to more expensive premiums.
Participating policies pay out dividends – so insurance rates are typically higher for these plans. But dividends can also be credited as part of your premium, lowering your out-of-pocket cost.
Because the premiums of a universal life insurance policy can change, so can the death benefit. This is reflective of the amount of cash value in the policy at the time of death, and it can be negotiated with the insurance company before death. The death benefit of whole life insurance does grow with the investment portion, but this can be predicted more easily.
Although both whole and universal policies have an investment component, only with universal policy can you decide which investments to pursue. With whole life insurance, the company decides upon the investments.
According to LIMRA's 2021 life insurance report, whole life plans dominated the total share of premiums within that year. While premiums came up to a total of $1.149 billion, term life insurance saw $391.3 million and universal life insurance saw $257.7 million in sales.
However, more term life policies (393,345) were sold in 2021 than the other types of life insurance products. Whole life came in second with 187,612 total policies sold – the large difference in total premiums compared to total policies sold can be attributed to the fact that permanent life insurance plans are far more costly than term ones.
LIMRA also reported a 35% growth in 2021 whole life premium sales when compared to the previous year. However, fewer insurers saw growth with whole life insurance in the last quarter of that year.
- $1.149 billion
Canadian whole life premiums sold
based on 2021 data from LIMRA
Canadian whole life policies sold
based on 2021 data from LIMRA
Canadian whole life growth annually
based on 2021 data from LIMRA
In the following year, LIMRA's 2022 life insurance report revealed that whole life insurance growth slowed down. The year-over-year increase in whole life premiums was 2% while the total life insurance market only saw a 1% increase. Term life premiums, on the other hand, fell by 8%.
And according to the report, the total market share in 2022 based on premiums was as follows: whole life insurance (65%), term life insurance (20%), and universal life insurance (15%).
Term life insurance was a popular product during the pandemic as it was much easier to purchase – insurance companies are generally less strict regarding approval for these products. Depending on the amount of coverage you choose, a medical check may not be needed.
However, the current market has since shifted to a similar state of pre-pandemic buying patterns. Whole life insurance policies have gained popularity again for Canadians looking to protect their loved ones financially in the long run – while term life is still a cost-effective option, many buyers are opting for whole or universal life plans.
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While a whole life policy can seem like a daunting purchase, it doesn't have to be – taking the time to learn all about the product will help you understand the ins and outs of your coverage. For more resources on whole life insurance, be sure to read our blog posts below.
Do I need whole life insurance?
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.
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.
Here are two other reasons in which whole life insurance should be considered:
- Estate planning - One 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 worldly 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 can be the perfect product to protect your family from that occurring, allowing them to inherit the assets in full.
- Lifelong investing - Of course, whole life insurance also gives you a cash surrender value (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 – 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, it's 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.
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 life insurance quotes and find the best rate for your coverage needs.
Does whole life insurance expire?
While term life plans can expire, whole life insurance does not expire, provided you continue making your regular payments on time. The policy will pay out to your beneficiaries upon your death. The policy remains enforced for your entire life, which is why it also referred to as permanent life insurance.
What are the best whole life insurance companies?
All of 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, Canada Life, and 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 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 pages on BMO life insurance, RBC life insurance, and TD Bank life insurance to learn more.
Which is better: term life or whole life insurance?
The better option between term life insurance and whole life insurance is dependent on your own personal needs. Term life insurance is not as costly and can cover you during a critical period of your life. On the other hand, whole life insurance is more expensive, but it covers you all the way until death. Think about your beneficiaries and when they will need your financial support, but also think about when they will no longer rely on you financially.
Can I cash in my whole life insurance policy?
You are typically able to access the cash in your whole life policy through a withdrawal, loan, or surrendering the policy.
A withdrawal from the policy means you are taking out a limited amount of cash while taking out a loan means you are borrowing cash from the policy with interest. Surrendering the policy completely allows you to access the built-up cash and use the money as you see fit.
Make sure to consider carefully as there can be disadvantages to accessing your cash value in a whole life policy. For example, withdrawals might not be tax-free if you go over your limit and you could be reducing your death benefit greatly. Loans might have high-interest rates while surrounding your policy early could have costly fees. Consider why you purchased the whole life policy in the first place and whether you still need the protection.
Is a whole life insurance policy a good investment?
It's not a simple answer and will depend on your risk tolerance and investment ambitions. It really depends on your budget and investment goals, as the low rates of return might not offset the high premiums. The main benefit is the policy does pay out a guaranteed return, but they’re expensive and not suitable for most people.
As an investment, a whole life policy provides you with coverage and earns you interest over time in a cash value account. This type of investment may best suit high net worth individuals and parents with lifelong financial dependents.
For more information, read our blog on this exact topic: Is whole life insurance a good investment?
Does whole life insurance have a cash value?
Yes, just like variable life and universal life insurance, a whole life insurance policy has a built-in cash value. Once you've begun accumulating cash value in your whole life policy, you could use the funds to:
Pay your policy premium
Take out a loan at a lower rate than banks offer
Create an investment portfolio that maintains and accumulates wealth
Supplement your retirement income
A whole life policy comes with a “guaranteed” cash value that will grow according to a formula the insurance company determines. The amount that is guaranteed will be calculated on your policy coverage amount. The bigger your premium, the larger the cash value.
What is final expense whole life insurance?
Final expenses insurance is a type of coverage that is specifically designed to cover end-of-life expenses. These include funeral and burial costs, medical bills and tax liabilities. You can purchase a whole life policy with final expense coverage that would payout at your death to cover any related expense.
Can I borrow against a whole life insurance policy?
Yes, you can borrow against any permanent life insurance policy that builds an actual cash value. The process of borrowing against a life insurance policy is actually quick and easy way to access cash when you need it.
Essentially a policy loan is created that is borrowing against your death benefit, and your insurance company use your whole life policy as collateral for the loan. Keep in mind that this isn't an interest free loan, as your life insurance company will add interest to the balance, which accrues whether the loan is paid monthly or not.
It's best to ask your insurance company who the borrowing process works, including the repayment plan and interest requirements.