What is Whole Life Insurance Canada 2024: Key Facts and Benefits

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What is Whole Life Insurance?

As a type of permanent life insurance, whole life insurance offers coverage for you until you die. The premiums and death benefit are the same throughout the duration of the insurance contract. A whole life policy also bundles as an investment tool, which can help fund your education, pay off a loan, or increase your wealth.

A part of your premium payments go into a savings account that grows tax-deferred at a rate set by the insurer. This accumulation of funds can contribute to your overall assets and wealth and be used for various purposes, including loan repayment or funding education expenses.

However, returns on investment are lower than other investment vehicles, partly because the provider deducts administrative fees for managing the insurance policy where another investment type insurance company might not.

Term life insurance or Whole life insurance

When shopping for life insurance, you’re likely to come across two types of life policies — term life and whole life. While whole life insurance (permanent life insurance) is suitable for various needs, it may not be a good fit for everyone. Education and information about whole life are essential in making the right decision for you.

Term life insurance is the simplest and purest form of insurance. In return for premium payments, it provides life insurance coverage — nothing else (unless you add riders). But the life insurance coverage and guaranteed death benefit is for a fixed time period.  

Whole life insurance has no end date. It also doubles up as an opportunity for an investment tool, allowing you to build guaranteed cash value that you use during your entire life (e.g. paying off a loan or funding your child's education). For this type of insurance, rates are considerably more expensive than term life.

Here’s a quick rundown of the main differences between the two.

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Advantages of Whole Life Insurance

Protection for life

A whole life policy is a contract without an end date. The security of knowing that your loved ones will receive a guaranteed death benefit upon your death, regardless of when you pass away, is a great comfort (it also helps to protect your family's wealth for generations to come).

Level Premiums

The premiums paid stay the same throughout the life of the policy. Some policies allow the policyholders to pay off the policy early.

After that, you won’t have to pay premiums, though the insurance coverage will remain in force until your death.

Builds Cash Value

Cash value is an important selling point for whole life insurance plans. It is a savings account built into your policy that grows with time. You can borrow from or against the cash value with regular withdrawals and even use it as collateral for a third-party policy loan.

Typically, this type of policy builds up cash value slowly to start with but then picks up the pace after some years. Eventually, your policy’s cash value may accumulate enough that you could use it to pay policy premiums until your death.

Tax Advantages

The death benefit of a life insurance policy is typically tax-free.

In addition, the cash value grows at a tax-advantaged basis, further contributing to your wealth-building goals. That means the money you withdraw won’t get taxed, provided the withdrawn amount is not more than the amount you’ve already paid in. This feature can be particularly advantageous for short-term cash needs, like starting or running a business.

If you've maxed out your RRSP and TFSA, a whole life policy could be another investment medium to consider. Many financial professionals would claim that the diverse services and benefits offered by whole life insurance policies make it an attractive long-term planning option.

Potential Dividends

Some whole life insurance policies pay annual dividends. When you are planning for retirement, you will want to consider how you will generate retirement income during that time. One option is to reinvest your insurance policy dividends into the policy to accumulate cash value more quickly. Alternatively, you can use the money to buy more coverage or pay off a part or all of your premium.

How much does Whole Life Insurance cost?

Whole life is more expensive than term life.

How much more?

Well, to quote a ballpark figure, you may have to pay anywhere between five to 15 times more than term life insurance for the same amount of coverage. You can get a more accurate quote with our life insurance calculator here.

Investing in permanent life insurance is heavy on the pocket for two reasons. One, it always pays the total life insurance benefit — of course, provided you pay premiums — since there’s no expiry date. Two, it includes a savings component.

Here is a sample of monthly whole life rates for a 40-year old, non-smoker based on a Standard health rating. This coverage is for monthly premium rates for life policies offered by Dundas Life insurance advisors from our partner insurance company Assumption Life.

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Life insurance costs are always unique to the insured. How much you will pay for coverage depends on many factors, such as:

Age

Like other insurance products, whole life insurance gets more expensive with age. Typically, the premium amount goes up by 8% to 10% for every year of age.

Coverage amount

The greater the death benefit, the higher the premium payments. So, a whole life policy with a $500,000 payout will be costlier than one having a death benefit of $100,000.

Health

When you apply for a whole life insurance policy, the insurer will review your health through a process called underwriting. You will need to take a medical test and answer some health-related questions.

Healthy applicants receive a more favourable classification and consequently get approved at a favourable rate. On the other hand, certain health conditions, like diabetes or high blood pressure, increases your rates.

Family’s medical history

Certain illnesses, like diabetes, tend to run in families. For this reason, many life insurance companies evaluate your family’s medical history when you apply. A family history of illnesses like heart disease, diabetes, or cancer can mean higher premium rates.

Smoking Status

Smoking increases the risk of premature death. If you smoke, you’ll have to cough up more — up to two to three times — for coverage than a non-smoker.

Occupation & Lifestyle

If you have a job or a hobby — like skydiving or bungee jumping — that puts you at risk, the insurer can bump up your premium rates.

Your Gender

When it comes to life insurance premiums, men pay 38% more than women for the same coverage on average, with the premium gap widening with age, because they have a lower life expectancy than female customers. (So if you are a man, be content with this fact and consider buying life insurance policies as early as possible).

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Types of Whole Life Insurance

There are many types of whole life insurance policies. Whatever your requirements are, you’re likely to find one that’s right for you.  

Ordinary whole life insurance

The premiums paid stay the same so long as you live. The policy builds guaranteed cash value that grows at a tax-deferred basis. You don’t get to choose how the guaranteed cash values are invested. The initial annual cost will be much higher than a term life insurance policy of the same amount.

Limited payment whole life insurance

You pay the required premiums for a limited number of years, like 5, 10, or 20 years. The benefits, however, last your entire life, providing uninterrupted service and protection for your loved ones.

Single premium whole life (SPL) insurance

In exchange for a single large payment, the insurer promises a guaranteed death benefit until you die. Cash value builds up much faster because the policy is fully paid off.

Survivorship life insurance

It insurers two people instead of one. The policy can be joint-last-to-die. This means beneficiaries receive the death benefit only after the death of the second insured. For this reason, this type of policy also goes by the name of second-to-die life insurance, providing a service tailored for couples.

Universal life (UL) insurance

You can vary the premium payments and adjust the death benefit as you see fit.

In addition, the value of growth is not in the form of guaranteed cash. You get to decide how the insurer invests the policy’s cash value, giving customers more control over their investments.

Variable universal life (VUL) insurance

The policy’s death benefit and guaranteed cash value are tied to a particular investment account. They increase if the value of the chosen investments goes up. But the death benefit and guaranteed cash value can also shrink considerably if the fund underperforms, potentially leading to a loss for policyholders.

Participating whole life insurance

You have the right to participate in the surplus earnings of your insurer and receive an annual dividend whenever the life insurance company makes an excess profit. You can receive funds in cash or use them to purchase an additional coverage amount or reduce future premium payments.

Alternately, you can leave dividends on deposit with the insurer and earn interest.

Final Expense Insurance

It has a small death benefit and as such is more affordable and easier to qualify than the standard permanent life insurance policy. Also known as burial insurance, it is designed to pay for end-of-life expenses, like medical bills and funeral expenses.

What are the Best Whole Life Insurance Companies in Canada?

Life insurance is complicated — but buying the right life policy from the right insurer doesn’t have to be. Work with a third-party broker, like Dundas Life, to find the best possible coverage at the best price.

Life insurance needs are not one-size-fits-all. There is no such thing as the best life insurance provider for everyone.

But there is a best insurer for your unique needs — and Dundas Life can help you find the right policy. Our licensed agents can also guide you through each event in your life that requires insurance coverage.

Canadian life insurance companies offer life policies for all kinds of financial goals. With expert help, you can easily locate a whole life insurance policy that meets your long-term goals and fits your current budget.

We can help you buy a whole life insurance policy from:

• Canada Life
• BMO
• Sun Life Financial
• Canada Protection Plan
• RBC Insurance
• Manulife, and more

Dundas Life partners with the leading life insurance companies in Canada. So, you can count on us to provide you with lots of options when you are shopping for a life insurer for lifelong protection.

Myths & Misconceptions

Ignorance may be bliss — but not when you are shopping for permanent life insurance. Incorrect or incomplete understanding of what you're buying can prevent you from picking the right type of life policy.

Myth #1 - You need to be in perfect health to qualify for life insurance

Life insurance companies reward healthy individuals with lower premium rates. But that doesn’t mean you will get turned down if you are not in good health. If you smoke or have health conditions, like diabetes or high blood pressure, your premium rates will be higher than normal.

However, a critical illness may automatically disqualify you from getting traditional permanent life insurance coverage — but even then, it’s not the end of the road for you. You can opt for no medical life insurance or guaranteed issue life insurance.

Myth #2 – Life insurance is too costly for seniors

There’s no sugar coating it — purchasing insurance over 60 is significantly more expensive than buying it at 30. That’s because the older you get, the more risk you have of dying. And that pushes up the premium rates.

All the same, there are affordable life insurance plans for seniors to cover specific needs. And it goes by the name of final expense life insurance. Easy to get and easy on the pocket, it can help take care of end-of-life expenses, like medical care and funeral costs.

Myth #3 – Term life insurance is better than whole life insurance

These are two different types of life insurance products and address different needs. So, in a way comparing them is like comparing apples and oranges.

Term life insurance is more suitable for financial goals with an end date.

For example, you want to put in place a safety net to help your spouse pay off the mortgage or other debts if you were no longer around or financially protect your children until they become independent. It is also a good choice if you are looking for an affordable way to financially protect your loved ones.

Whole life insurance, on the other hand, is an ideal solution in situations such as:

You want to leave a lasting financial legacy to your heirs:

Whole life or permanent life insurance policies give you peace of mind since you know your children will receive the death benefit upon your death.

You want to preserve and grow the value of your estate for your heirs:

Buying whole life insurance within a trust to leave behind a death benefit to take care of the estate taxes after you pass away (part of your comprehensive estate planning process).

A spouse or partner depends on you financially or you have a special-needs child:

A whole life insurance policy and its death benefit ensures your loved one gets the necessary support to live comfortably after you are no longer there to provide for them.

You want to create an extra source of savings:

A whole life insurance policy gives you access to a pot of tax-free cash value in the form of policy loans

What are some alternatives to Whole Life Insurance?

Considering the drawbacks of whole life insurance, it's essential to explore alternative options that offer unique benefits. Here are some alternatives worth considering:

Term Life Insurance:

Term life insurance premiums are much cheaper than whole life insurance, costing five to 15 times less than whole life insurance. This means you can purchase significantly more coverage for the same price, providing greater financial protection for your loved ones.

Universal Life Insurance:

Universal life insurance offers lifelong coverage while incorporating an investment component. Although the cash value growth differs from whole life insurance, it provides flexibility to suit your specific needs and financial goals.

Single Premium Life Insurance:

With single premium life insurance, you have the opportunity to make a one-time payment that fully pays off the policy instead of monthly or annual premium payments. As a result, the guaranteed cash value grows at an accelerated rate, enhancing the potential value of your investment.

By assessing these alternative options, you can make an informed decision that aligns with your financial objectives and safeguards the future well-being of your family.

Is Whole Life Insurance Worth it?

Whole life insurance is a good fit for people having special circumstances. Does your spouse or partner depend on you financially? Do you have a special-needs child?

If you said yes, whole life insurance can give you peace of mind because you know your family and dependents will get support of the payout upon your death, whenever that may happen.

Have you maxed out other investment vehicles? If yes, whole life insurance can be a good fit for you.

For everyone else, term life insurance may be a better choice because it’s cheaper.

Get in touch with an independent advisor, like Dundas Life, to understand if whole life insurance is a better choice for you and find the best possible price for how much life insurance you might need.

Frequently Asked Questions (FAQ)

How does whole life insurance work?

Whole life insurance provides lifetime coverage and builds up cash that you can access during your lifetime. A portion of your premium payments goes into keeping the policy in force while another portion gets funneled into a savings component that grows tax-free. So, this insurance type is both an investment tool and a way to secure your family’s financial future after you’re gone.

Is whole life insurance permanent?

Whole life insurance is a type of permanent life insurance. It provides coverage that lasts lifelong with the paid premiums. It also includes cash value as a savings component , which grows over time. Unlike term insurance, whole life doesn't expire after a specific period, ensuring a guaranteed death benefit and lasting peace of mind for policyholders as well as their beneficiaries.

What are the main differences between term life insurance and whole life insurance?

Term life insurance plans covers you for a limited period and doesn’t accumulate guaranteed cash value. Whole life insurance, in comparison, stays in force until you die and builds up cash value that you can use while alive. However, these perks don’t come cheap. Whole life or permanent life insurance policies are substantially more expensive than term insurance.

What are the main differences between whole life insurance and universal life insurance?

While whole life and universal life insurance are very similar, there are a couple key differences between the two.

A whole life policy is all about guarantees. It provides a guaranteed level premium, guaranteed death benefit, and a guaranteed cash value. That means your premium will stay the same, as would the death benefit, and the cash value will grow at a rate set by the insurer. In whole life insurance, the insurer decides how the cash value is invested.

Universal life insurance offers flexibility — not guarantees. You can change your premium payments and adjust the death benefit as you see fit. Also, the cash value doesn’t grow at a steady rate. In the case of universal life, you decide what the investments consist of.

Is whole life insurance a good investment?

A portion of your whole life insurance premium gets deposited into a tax-free savings account. As the account grows, you can borrow against it or withdraw money from it.

However, compared to other investment tools, the return on investment on whole life insurance policies tend to be lower and fees higher. For this reason, whole life insurance is a good fit for only those people who’ve already maxed out other investment vehicles.

How much is whole life insurance?

Whole life insurance premiums are unique to the individual applying for coverage. The insurer carefully determines your premium rate depending on your specific insurance needs and other personal factors, such as age, health, smoking status, and financial circumstances.