Whole life insurance is permanent life insurance that offers protection for your entire life as long as you pay the premiums. Term life insurance (or temporary life insurance), in contrast, is coverage for a set period of time, typically 10, 20, or 30 years.
The premiums for whole life insurance are usually more expensive than term life insurance. However, the death benefit can grow over time and as long as premiums are paid, the coverage will not cease. Whole life insurance also contains a cash value component. This is an investment component of the plan that can increase over the lifespan of the policy. Any growth of cash within the policy will be tax-deferred. There are numerous options for cash loans and withdrawals.
The premiums for term life insurance are generally less than whole life insurance, but the death benefit only pays out if the end of your life occurs during the term of the policy. Term life insurance doesn’t have a cash value component.
Compare whole life and term life insurance:
| Whole Life Insurance | Term Life Insurance | |
| Coverage | Permanent | Temporary |
| Premiums | More expensive | Less expensive |
| Death benefit | Can increase over time | Pays out if you pass away during the term of the policy. Death benefit does not increase. |
| Cash value | Yes | None |
| Flexibility | Flexible withdrawals of cash and policy loans | No flexibility |
| Cost-effectiveness | Less cost-effective for short term coverage | More cost-effective for short term coverage |
Which Type of Life Insurance is Right for Your Situation?
Generally speaking, there is a place for both types of insurance coverage. Most of your need may be temporary (mortgages, student loans, raising a family). However, some of your coverage needs will likely always be permanent (funeral expenses, estate taxes, debt that lingers longer than expected).
Your unique circumstances will decide which type of life insurance is best for you. Whole life might seem more expensive in the short term. However, because of the way the death benefit increases over time, if you start early it’s a better investment. But it doesn’t fit everyone’s budget. And if you only need protection for a particular period, then term life insurance might be the better direction.
Life can take unexpected twists and turns, and the best coverage at one age, may not be ideal at another. We recommend you review your coverage needs regularly. Our advisors work with every major insurance carrier in Canada. At no additional cost to our clients, we can help create a plan for your current scenario, and to help you navigate the waters as life changes. Learn about the variety of life insurance plans we offer.