Permanent Life Insurance in Canada 2024

Purchasing permanent life insurance is a major financial decision that requires careful consideration. This comprehensive guide provides Canadian consumers, investors and advisors extensive details on permanent life insurance, including key features, policy types, costs, benefits, drawbacks, and expert tips for selecting the right permanent coverage.

What is Permanent Life Insurance?

Permanent life insurance provides lifetime protection that never expires, provided premiums continue being paid. It differs from term insurance, which only covers a set period of time.

Permanent life insurance has two main components:

• Death Benefit – This is the lump-sum payment passed tax-free to beneficiaries upon the policyholder’s death. The amount is set at time of purchase.
• Cash Value – The cash value account earns interest and builds savings that the policyholder can access through withdrawals or policy loans while alive.

The cash value portion makes permanent insurance more expensive than term insurance but also provides unique options for accessing funds if needed.

Types of Permanent Life Insurance Policies in Canada

There are three main types of permanent life insurance policies sold in Canada:

Whole Life Insurance

Whole life insurance offers guaranteed premiums, death benefits, and cash value growth rates over the life of the policy. Premiums remain level and are usually payable for life. The death benefit and cash value grow at a fixed rate outlined in the policy terms.

Some whole life policies are “participating” meaning they can earn dividends to help offset premium costs over time or increase the death benefit. However, dividends are not guaranteed.

Whole life insurance provides permanent, predictable coverage but offers the least flexibility compared to other permanent products.

Universal Life Insurance

Universal life insurance combines lifelong coverage with investment-linked cash value growth. Within specified limits, the policy owner can adjust the death benefit and pay flexible premium amounts based on changing needs and objectives.

The cash value earns interest based on the performance of investment accounts selected by the policyholder from options made available by the insurer. The returns are not guaranteed, so monitoring is required to ensure adequate funding.

Universal life insurance offers more flexibility and transparency regarding investments and costs compared to whole life but introduces more variability.

Read more : Universal life insurance

Variable Life Insurance

With variable life insurance, the death benefit, premium payments, and cash value fluctuate based on the performance of investments the policyholder selects from a range of choices.

It provides the ability to customize investments linked to the policy but also greater uncertainty regarding the policy’s future value. Performance depends entirely on the success of the investments chosen.

Variable life insurance allows policy owners to be willing to accept more risk to potentially achieve higher returns on the cash value component.

Read more : Variable life insurance

Hybrid Policies

Some insurers offer permanent life insurance policies that blend features of whole life, universal life and variable products. For instance:

• Variable universal life – Combines the premium and death benefit flexibility of universal life with the invested asset choices of variable life.
• Indexed universal life – Interest earnings on cash value are linked to a market index like the S&P 500 but with protections against losses. Provides more upside potential than whole life with less downside risk than universal life.

These hybrid products provide consumers with more choices. However, the added complexity requires working with an experienced advisor to ensure the policy aligns with your specific needs and objectives.

Who Might Benefit from Permanent Life Insurance?

While term life insurance meets most families’ temporary coverage needs, permanent life insurance can make sense in certain situations:

High Net Worth Individuals

Wealthy individuals who have maxed out registered savings plans can use permanent life insurance for tax-advantaged investing and estate planning. The tax-deferred cash value growth can help magnify inheritances left to heirs.

Business Owners

Business owners can use permanent life insurance to fund buy-sell agreements and ensure a smooth business transition upon death. This provides liquidity to settle ownership obligations with a partner or shareholders.

Lifelong Financial Dependents

For individuals with dependents requiring lifelong care, like special needs children, permanent life insurance guarantees death benefits no matter when you pass away. This protects dependents when you’re gone.

Charitable Giving

Leaving the death benefit from a permanent life insurance policy to a charity lets you make a sizable donation in a tax-efficient manner. Premium payments are also tax deductible for charitable gifts.

Final Expenses and Funeral Costs

For seniors, small permanent policies can provide funds to cover outstanding healthcare costs, taxes owed upon death, and funeral expenses so loved ones aren’t burdened.

Advantages of Permanent Life Insurance

Permanent life insurance offers several financial benefits:

Lifelong Coverage

It provides lifelong insurance protection. The policy cannot be cancelled as long as premiums continue to be paid on time.

Death Benefit Certainty

Beneficiaries are guaranteed a tax-free death benefit payout no matter when the insured person passes away. This certainty helps with estate planning.

Cash Value Growth

The cash value portion earns tax-deferred interest. This allows tax-efficient investing for retirement, an emergency fund, or supplementing income in later years when needed.

Loan and Withdrawal Options

Policyowners can access the cash value through withdrawals or policy loans for financial needs like debt consolidation, a down payment, or college tuition. Loans are generally not taxable.

Stable Premiums

Whole life insurance offers guaranteed level premiums that never increase due to age or health changes. This helps lock in affordable rates long-term.

Dividend Potential

For participating whole life policies, dividends from the insurer provide an added benefit to offset premium costs or increase the death benefit over time.

Drawbacks and Risks of Permanent Life Insurance

While permanent insurance has advantages, there are also important drawbacks and risks to consider:

High Premium Costs

Premiums are significantly higher than term insurance – often 5-15 times greater for an equivalent death benefit amount. Annual costs for a permanent policy can easily be a few thousand dollars.

Policy Lapses

If the cash value falls below zero and can no longer cover fees and charges, additional premiums may be required to prevent the policy from terminating without value.

Surrender Charges

Cancelling the policy in the early years generally results in surrender charges that recapture some of the cash value. These charges diminish over time.

Lower Returns Than Other Investments

After fees, the cash value growth rate is typically lower compared to returns on stocks, mutual funds, real estate or other assets you could invest in.

Tax Implications of Withdrawals

Withdrawing funds from the cash value in excess of your cost basis can result in taxable income. Capital gains taxes apply to withdrawals above your cumulative premiums paid.

Interest Costs on Policy Loans

While loans don’t require credit checks or income verification, interest rates on policy loans are usually 6-8% or higher. Unpaid interest is deducted from the death benefit.

Risk of Policy Lapse Due to Mismanagement

For adjustable permanent policies like universal life, poor funding choices can cause the policy to lapse if the cash value becomes insufficient to keep the policy active.

Who Should Consider Permanent Life Insurance?

Permanent life insurance is worth considering if:

• You have a lifelong need for insurance protection.
• You want to maximize tax-deferred investment and estate planning options.
• You have sufficient income to afford the higher premium costs.
• You expect to require life insurance in Canada well into retirement.
• You have special needs dependents requiring lifelong support.

Read more : what is life insurance in Canada

For most families, affordable term life insurance meets temporary coverage needs just fine. However, permanent insurance can make sense for policyholders meeting some of the above criteria.

Calculating the Right Permanent Life Insurance Coverage Amount

Determining the appropriate permanent life insurance coverage amount requires assessing multiple factors:

Final Expenses

Funeral costs, estate administration fees, and outstanding taxes and debts at time of death should be considered. Often $25,000 to $50,000 in coverage can cover these final costs.

Dependent Care

For any child, spouse, or family dependent requiring lifelong financial support, calculate the present value of their lifetime living, medical and education expenses.

Mortgage and Debts

If you wish to pay off housing debts and other loans/liabilities at the time of death, factor in current balances and future repayments.

Income Replacement

Assess the present value of future income lost for dependents at the time of death based on your earnings and their life expectancy.

Education Funding

If you want to fund college or other post-secondary education expenses for children or grandchildren, estimate future costs.

Estate and Inheritance Goals

For wealthy policyholders using permanent life insurance for estate planning and maximizing inheritances, factoring in estate taxes and the future value of assets transferred.

Charitable Giving

If you wish to donate the death benefit to a charity, determine the amount you want to gift. Some insurers also offer products tailored specifically for charitable giving.

Permanent Life Insurance Costs in Canada

As a guide, monthly premiums for a healthy 30-year-old non-smoker in Canada are:

Permanent Life Insurance Sample Monthly Premiums

Coverage Amount	Whole Life	Universal Life
$250,000	$121 – $135	$87 – $103
$500,000	$210 – $243	$145 – $180
$1,000,000	$385 – $450	$240 – $320

These sample premiums demonstrate that permanent insurance costs significantly more than term insurance. Monthly term life insurance rates for equivalent coverage would only be about $15-$25.

Factors that increase permanent life insurance premiums include:

• Older age
• Poor health
• Male gender
• Smoker status
• Higher death benefit amount
• Addition of policy riders

The type of permanent insurance also impacts cost, with whole life generally being the most expensive and universal life less costly.

Applying for Permanent Life Insurance in Canada

The application process for permanent life insurance includes:

Medical Exam – Bloodwork, urine sample, and measurements like height and weight are required. The exam checks for any undisclosed health issues.

Health Questionnaire – You must fully disclose any medical conditions, prescription drugs, family history of disease, and lifestyle factors like alcohol use or hobbies.

Financial Information – Your income, assets, liabilities, and net worth must be documented to assess insurability and set an appropriate death benefit.

Review and Underwriting – The insurer will review the results and assess your mortality risk to determine eligibility, pricing and coverage amount. Higher-risk applicants may face higher premiums or a rejection.

Policy Issue – If approved, the insurer issues the permanent life insurance policy after premiums are paid. The policy contract outlines all terms and conditions.

Delivery – The policy documents are mailed or electronically delivered to you for review. A ‘free look’ period allows returning the policy for a full refund if unsatisfied.

Overall, expect the application process to take 4-6 weeks on average after completing all requirements.

Tips for Buying Permanent Life Insurance

If considering permanent life insurance, it’s highly recommended to:

• Compare quotes from at least 5-10 reputable life insurance companies to find competitive pricing. Different insurers price permanent insurance very differently.
• Work with an independent broker or advisor to objectively assess your needs and filter suitable policy options. Avoid captive agents selling products from just one insurer.
• Review ratings for financial strength to ensure the insurer offers long-term stability and the ability to pay claims. Rating agencies like A.M. Best provide objective assessments.
• Select a reputable company that’s established, transparent and puts customers first. Steer clear of newer or “too good to be true” insurers.
• Understand all policy details like fees, investment options, liquidity, cancellation rules, taxes, and anything unclear before purchasing. Read the fine print.
• Customize applicable riders like waiver of premium to adapt the policy to your unique situation and maximize benefits. Not all riders make sense.
• Take advantage of technology like online policy management, data reporting, and tools to increase transparency and policy control.

Alternatives to Permanent Life Insurance

If permanent life insurance seems unsuitable or unaffordable, several options can meet needs in a more cost-effective manner:

Term Life Insurance – Provides pure death benefit protection at a much lower cost. Suitable for most temporary income replacement or mortgage needs if purchased with a term matching the requirement.

Self-Insured Saving Account – Rather than overpaying for permanent insurance cash value, systematically invest the premium difference in stocks, mutual funds, or real estate to create your own taxable investment account.

Whole/Universal Life Policy With Short Pay Option – This pays up the policy during working years so that minimal or no additional premiums are needed in retirement. This reduces lifetime costs but still provides lifelong protection.

Guaranteed Universal Life Insurance – Combines guaranteed level premiums and death benefits like whole life insurance with the flexibility of universal life insurance. It’s somewhat more affordable than traditional whole life.

Joint Last-to-Die Policy – Insure a couple jointly so the death benefit only gets paid when the last spouse passes away. This dramatically reduces premiums compared to two individual permanent policies.

Exchange-Traded Life Insurance Policies – Allows selling unwanted policies to investors through a regulated exchange, eliminating the need to keep paying premiums on unneeded coverage. This secondary market provides options for offloading unwanted permanent insurance.

Conclusion

Permanent life insurance can provide valuable benefits like lifelong coverage, estate planning advantages, and tax-deferred cash value growth.

A critical evaluation of individual needs and priorities is necessary to determine if permanent insurance aligns well with alternatives. Consumers are encouraged to thoroughly research options, costs, and policy details with an experienced advisor before making purchase decisions.

Permanent life insurance offers unique benefits but at higher costs compared to term life insurance, which is sufficient for most families needing temporary protection. Applying due diligence during the insurance application process and securing coverage from reputable insurers remains key to protecting financial futures.

Get free insurance quotes from top life insurance companies easily online at bestinsuranceonline.ca. Compare your best options and rates for both term and permanent insurance to protect your loved ones. Our advisors are standing by to help you make the right coverage decisions.

Frequently Asked Questions about Permanent Life Insurance in Canada

1. How is permanent life insurance different from term life insurance?

The main difference is permanent life insurance provides lifetime protection that never expires, while term life insurance only covers a set period of time, such as 10 or 20 years. Permanent life insurance also builds up a cash value, while term insurance only pays out a death benefit with no cash component.

2. When should I consider permanent life insurance?

Permanent life insurance is worth considering if you have a lifelong need for coverage, such as a special needs dependent, want to leave an inheritance, have maxed out registered savings plans, or need coverage into advanced age. It also allows tax-deferred investing in the cash value.

3. What are the different types of permanent life insurance policies?

The main options are whole life, universal life, and variable life. Whole life offers set premiums and cash value growth. Universal life allows for the adjustment of death benefits and premiums. Variable life ties cash value to investments you select. There are also hybrid policies that blend features.

4. How much does permanent life insurance cost?

Permanent life insurance costs significantly more than term insurance, often 5-15 times as much for an equivalent death benefit amount. A healthy 30-year-old may pay $100-$150 monthly for $250,000 of permanent coverage compared to only $15-$25 for term insurance.

5. Is the cash value in permanent policies guaranteed?

For whole life insurance the cash value growth rate is fixed. For universal and variable policies, the cash value will depend on investment performance and is not guaranteed. Poor returns can impact available cash values.

6. Can I lose my permanent life insurance policy?

Yes, permanent policies can lapse or terminate if you stop paying premiums. Some policies allow a grace period to catch up on late payments and reinstate coverage. However, letting a permanent policy lapse usually results in losing your insurance protection and any cash value built up.

7. Are death benefits taxable for permanent life insurance?

No, the death benefit payout from a permanent life insurance policy is received tax-free by your beneficiaries. However, withdrawals or loans taken against the cash value during your life may have tax implications.

8. Can I change my permanent policy later if I need to ?

Some changes, like adjusting the death benefit or premiums, are possible for universal and variable policies. However, a permanent policy cannot be converted to term insurance. You would need to cancel your existing permanent policy and apply for a new term policy.

9. Can I get permanent life insurance after a cancer diagnosis?

Yes, permanent policies are available after a cancer diagnosis, but expect to go through additional underwriting and potentially pay higher premiums. No medical exam “guaranteed issue” whole life policies up to $25,000 are also an option.

10. What medical tests are required when applying?

Expect bloodwork, urine sample, height/weight, doctor exam, and many detailed health history questions. Insurers want full disclosure of medical conditions and prescription drugs to assess risk. The application process takes 4-6 weeks.