Whole Life Insurance: Everything Canadian Need to Know 2024


Farshad Asl – a leadership expert and Amazon best-selling author – once regarded “Life Insurance” as “Love Insurance” that helps purchasers leave a legacy for their beloved ones. Even though you may well perceive life insurance’s value like him, have you selected the most suitable type of insurance? Whole life insurance may be an appealing option for some but is it worth your choice? Read this comprehensive guide to figure it out with Best Insurance Online!

What is Whole Life Insurance in Canada?

Whole life insurance in Canada is the most popular permanent life insurance policy that gives you lifelong coverage, including a death benefit and the cash value. When first applying for coverage, you can select the coverage amount. Your premium will be calculated based on your age, gender, and health status. Then, you need to pay your predetermined premiums to keep your whole life insurance in effect.

Once you have purchased the insurance, your premiums payment stays the same during your insurance policy life on the condition that you pay them. You can choose to pay your premium monthly, quarterly, semi-annually, annually, or even after a certain number of years.

Key defining features of whole life insurance in Canada

  • Lifelong Coverage – As long as premiums are paid, the policy remains in effect for your entire life. It never expires.
  • Guaranteed Death Benefit – Your beneficiaries will receive a lump sum tax-free payout called the death benefit when you pass away. This amount is fixed at the time you purchase the policy.
  • Level Premiums – Your premium payments remain the same and are guaranteed to never increase over the lifetime of the policy.
  • Cash Value – A portion of each premium payment goes toward building up the policy’s cash value, which functions as a savings account earning interest. Policyholders can access this through withdrawals or policy loans.
  • Limited Pay Options – Some policies allow you to pay off your premiums in a set timeframe, such as 20 years, while still maintaining permanent lifetime coverage.
  • Tax Advantages – The growth of the cash value and any loans taken against the policy are tax-deferred or tax-free.

Whole life insurance combines guaranteed lifelong coverage with a low-risk savings component. It provides long-term protection and financial benefits for policyholders in Canada.

How Does Whole Life Insurance Work in Canada?

As previously mentioned, whole life insurance offers the policyholder the cash value, which is a portion of the premiums paid into a tax-deferred account. You can use the cash value in diverse ways.

You can take out tax-free money. However, when surrendering or terminating your policy, your withdrawn money will become taxable income.

Besides, you can borrow a loan with low interest rates, which you still have to pay off. Failure to pay can result in your spouse, child, or any individual eligible for your policy coverage losing a part or all death benefit when you pass away. For any amount you owe the insurance company, they will deduct it from the benefits.

Besides, you can get the accumulated cash value by giving up your policy. The amount of money you can get back depends on how long you have had the policy when terminating it. Remember that cancelling your policy within the surrender period may lead to your penalty. Moreover, since the cash value usually grows after 2 or 3 decades, you may receive less cash than what you’ve paid if you surrender your policy early.

Who Needs Whole Life Insurance in Canada?

While whole life insurance can provide value to many Canadians, there are certain situations where it is especially beneficial:

High Earners

The tax-deferred savings component appeals to higher-income earners who want to shelter more of their money from taxes. Once RRSP and TFSA contributions are maxed out, whole life insurance allows for further tax-advantaged investing.

Business Owners

For business owners, whole life insurance can be used to fund buy-sell arrangements, protecting against the loss of a key employee or owner. The cash value can also be useful collateral for business loans.

Estate Planning

The death benefit and ongoing cash value accumulation make whole life insurance an effective estate planning tool. It provides an efficient way to transfer wealth to beneficiaries or heirs in a tax-favoured manner.

Special Needs Dependents

Securing lifelong care for a beneficiary with special needs is one of the prime uses of whole life insurance. The death benefit and access to cash value can provide continual support for disabled dependents.

Mortgage Protection

Whole life insurance can provide financial protection beyond just the mortgage term, and it can also help cover other final expenses. The beneficiaries receive support well after the mortgage payoff.

Consult with an experienced advisor to ensure your whole life insurance aligns with your financial situation and goals.

Pros and Cons of Whole Life Insurance in Canada

Pros of Whole Life Insurance

  • Lifelong Coverage – Permanent protection as long as premiums are paid. Avoid future health risks.
  • Cash Value Savings – Builds conservative cash value that earns interest to tap into if needed.
  • Stable Premiums – Payments will never increase over your lifetime.
  • Premium Flexibility – Options like limited pay allow you to pay premiums faster.
  • Guarantees – Guaranteed death benefit and guaranteed cash value growth.
  • Loans & Withdrawals – You can access cash value through tax-free loans and withdrawals.
  • Strong Asset – Cash value functions as an asset to borrow against which.
  • Dividends – Participating policies can provide dividends for growth or cash access.
  • Custom Riders – Add optional riders for benefits like critical illness coverage.

Cons of Whole Life Insurance

  • High Upfront Cost – Initial premiums are higher than term insurance.
  • Less Liquidity – Cash value has lower liquidity compared to other assets.
  • Missed Payments – Lapsed payments put guarantees at risk.
  • Lower Returns – Interest rates may be lower than investing returns.
  • Fees & Penalties – Loans and withdrawals can incur fees and penalties.

Consider both the pros and cons when deciding if whole life insurance suits your personal insurance needs and financial priorities.

Types of Whole Life Insurance Policies in Canada

There are several varieties of whole life insurance policies available in Canada:

Traditional Whole Life

This is the most common and customizable type of whole life insurance. It provides lifelong coverage with lifelong-level premiums, cash value accumulation, and a guaranteed death benefit. Most customizable.

Limited Pay Whole Life

With this option, premium payments are only required for a set period, such as 10 or 20 years. Once premiums are paid up, coverage continues for life without any additional premiums required.

Single Premium Whole Life

As the name suggests, a single large one-time premium pre-pays for the whole life insurance policy. No future premiums are needed. Often used for estate planning.

Participating Whole Life

Participating whole life insurance includes dividends. Each year a portion of the insurer’s profits are distributed to policyholders in the form of dividends which they can take as cash or use to increase the benefits.

Discuss these options with your advisor to select the right whole life insurance policy for your particular situation.

What Factors Determine Your Whole Life Premiums?

Life Insurance companies in Canada consider several factors and risk metrics when pricing whole life insurance policies:

Age – Your age at the time of purchase hugely impacts your premium cost, with rates increasing significantly as you get older. Buying early provides the lowest locked-in rates.

Gender – Statistically, insurance costs are higher for males than females due to shorter life expectancies for men. Gender is a standard rating factor.

Health – Your current health status and medical history play a big role. Healthy individuals receive preferred rates, while medical conditions lead to higher premiums.

Lifestyle – Habits such as smoking and engagement in high-risk hobbies will increase your rates.

Family History – Pre-existing health conditions for close family members may indicate higher future risks for you.

Read more: Family Life Insurance

Occupation – Dangerous jobs may contribute to higher mortality risk. Premiums are adjusted accordingly.

Coverage Amount – The greater the death benefit amount, the higher the required premiums to support it.

Purchasing coverage early while young and healthy helps lock in the lowest premium rates possible.

What Does Whole Life Insurance Cost on Average in Canada?

Whole life insurance premiums are significantly higher than term insurance premiums. This is due to the lifelong coverage, cash value accumulation, and guaranteed benefits.

These tables outline the average costs for whole life insurance in Canada based on age and coverage amount:

Average Monthly Premiums for $250,000 Coverage

Age Male Female
30 $125 $105
40 $175 $150
50 $300 $250
60 $600 $500

Average Monthly Premiums for $500,000 Coverage

Age Male Female
30 $250 $210
40 $350 $300
50 $600 $500
60 $1,200 $1,000

Premium rates are personalized based on your individual risk profile. Get quotes from multiple insurers to find the best rate.

Is It Worth Investing in Whole Life Insurance?

Even though the average person does not prefer a whole life insurance policy, others still accept to pay the higher premiums. According to Patrick Hanzel, a Senior Planning Specialist, this insurance policy is typically an excellent choice for those having dependents with special needs, stable annual incomes, etc.

Death Benefit

You can use whole life insurance to fund a trust that supports your dependents after your death. You may find it worth your investment because it safeguards your beloved ones from financial burdens when you’re gone. The money your beneficiary gets at your death within the coverage period is tax-free. This death benefit allows them to deal with your burial, funeral, or other final expenses without dipping into their savings and investments. Buying a whole life insurance policy for business owners is also common in Canada.

Unchanged Premiums

When you are young, and in good health, you may see that whole life insurance premiums are expensive. However, when you turn old age, it turns out that they are relatively affordable compared to your death benefit. This is a significant advantage because your premiums will stay the same regardless of your increasing age and declining health.

Cash Value Access

Moreover, if you have a tight budget and need a fixed premium, you can turn to whole life insurance. The cash value, for any reason, is within your reach, especially in case of an emergency. You may also get dividends, though not guaranteed. Some companies allow you to add any dividends you receive to your policy’s cash value or pay for your insurance premiums.

Alternatives to Whole Life Insurance in Canada

Here are some other life insurance policy types to consider as alternatives to whole life insurance in the Canadian market:

Term Life Insurance

  • It offers pure protection with affordable rates and customizable 10 to 30-year terms.
  • No cash value, savings, or investment element. Provides largest death benefit per dollar.

Read more: Term Life Insurance in Canada

Universal Life Insurance

  • Permanent coverage with flexible premiums and investment options.
  • Returns tied to the market performance of investment account holdings.

Read more: Universal Life Insurance in Canada

Guaranteed Issue Life Insurance

  • Simplified application with limited underwriting and no medical exam.
  • Lower coverage amounts but guaranteed approval for older or high-risk applicants.

Final Expense Insurance

  • Specifically designed to cover end-of-life costs and funeral expenses.
  • Typically capped at $50,000 coverage but easier to qualify for.

An experienced advisor can provide guidance on the best life insurance solution for your budget and needs.

Using Whole Life Insurance for Retirement Planning in Canada

The conservative cash value growth and tax-deferred characteristics of whole life insurance allow it to be utilized as part of retirement planning:

  • Supplement retirement income through withdrawals or policy loans against accumulated cash value.
  • Pay off policy earlier through limited pay to minimize or eliminate retirement premium payments.
  • Reinvest dividends from participating whole life policies to grow death benefits and retirement assets.
  • Leave a larger tax-free inheritance for heirs through lifelong death benefits and ongoing cash value growth.
  • Provide guaranteed income through annuitization of the death benefit.
  • May be preferable for risk-averse retirees compared to variable investments vulnerable to market volatility.

Consult a financial advisor to assess whether adding whole life insurance could be beneficial for your retirement plan.

Using Whole Life for Estate Planning in Canada

In addition to retirement planning, whole life insurance also has several applications for estate planning purposes in Canada:

  • Death benefits and cash values bypass the probate process and transfer wealth directly to named beneficiaries.
  • Proceeds distributed to beneficiaries are generally income tax-free.
  • Can be used to cover potential estate taxes or debts so heirs inherit the full value of assets.
  • Value grows tax-deferred, allowing larger estates to be passed down over time.
  • Can fund trusts to provide asset protection and management for beneficiaries.
  • Cash value offers means to access funds if a large payment is needed for estate planning or to transfer assets out of the estate.

Consult an estate planning lawyer or financial advisor to assess if whole life insurance strategies could benefit your estate plan.

Common Riders & Add-Ons for Whole Life Insurance

Riders provide optional additional benefits or coverage that can be added onto a whole life insurance policy:

Waiver of Premium

  • Waives premium payments if the insured becomes totally disabled and unable to work. Keeps policy active.

Accidental Death Benefit

  • Provides an additional payout on top of the death benefit if death is due to a covered accident.

Critical Illness Rider

  • Pays out a lump sum if diagnosed with a specified critical disease like cancer, stroke, or heart attack.

Guaranteed Insurability

  • Option to increase death benefit at certain milestones without new underwriting. Useful for growing families.

Long-Term Care

  • Provides additional funds to cover long-term care costs if ever needed.

Discuss available riders that may be applicable to your situation and goals with your insurance advisor.

Surrendering or Cancelling a Whole Life Insurance Policy

Policyholders have the option to surrender or cancel their whole life insurance policy at any time. Here is an overview of the implications:

  • All coverage and benefits will be permanently terminated. This includes the death benefit for your beneficiaries.
  • You will receive the cash surrender value, which is the accumulated savings in your cash value account minus any surrender charges.
  • Taxes may be owed on the cash value surrendered above your premiums paid if not transferred into a new policy.
  • Outstanding loans against the policy will be deducted from any cash value you receive.
  • Typically, it is only advisable to surrender if you no longer need life insurance or cannot afford premium payments.

Consult with your insurance advisor before considering surrendering your policy to review all your options.

How To Select the Appropriate Whole Life Insurance in Canada?

Select The Right Coverage Amount

If you want to pick the policy with your desired coverage amount, you should determine what you need in this policy. A comparatively small policy — $10,000, for instance — is suitable to cover a funeral. However, you may have to select a larger policy for priorities, such as funding a trust for your dependents with special needs.

Look Into Whole Life Insurance Riders

You can add extra coverage features, also called riders, to your life insurance policy. For example, you can supplement a chronic illness rider, which allows you to receive some of the death benefits as you suffer from a severe illness. You can opt for the “disability waiver of premium” rider to skip payments when you become disabled.

Many insurers don’t require you to pay an extra premium for an accelerated death benefit rider. They provide this rider for policyholders to tap part of their death benefits when they become terminally ill.

In general, insurance companies offer diverse kinds of riders with varying costs. Hence, you should ensure that you think it over to get a policy with your needed riders.

Conclusion – Next Steps for Purchasing Whole Life Insurance

Given its complexities, partnering with an experienced advisor can be key to determining if whole life insurance is the right fit:

  • Evaluate your needs – Assess if you have permanent insurance needs and can afford the higher premium costs.
  • Compare policy types – Work with your advisor to select the right whole life insurance product for your needs.
  • Research insurers – Compare highly rated providers like Canada Life, Sun Life, or Manulife Financial.
  • Get quotes – Price out options from multiple insurers to find affordable rates based on your profile.
  • Submit an application – Complete required medical assessments and apply for coverage.
  • Accept the offer – If approved, review policy terms with the advisor prior to accepting the offer.

At Best Insurance Online, our advisors can provide personalized guidance, unbiased recommendations, and pricing support to help you confidently navigate the whole life insurance marketplace in Canada. Contact us to get started today.

FAQs About Whole Life Insurance in Canada

What is a “premium holiday”?

A premium holiday is when the insurance company temporarily waives your whole life insurance premiums, usually for one year if your policy has accumulated significant cash value. After the holiday, regular premium payments resume.

Can you borrow or access cash value before retirement?

Yes, most whole life policies allow you to borrow from or withdraw accumulated cash value through policy loans at any time, even well before retirement. This can provide access to funds for emergency expenses or other financial needs.

What is the difference between surrendering versus cancelling a whole life policy?

There is no difference. Surrendering and cancelling both refer to terminating the whole life insurance policy in exchange for its cash surrender value. The coverage ends and cannot be reinstated.

Are dividends from participating policies guaranteed?

Unlike the death benefit and cash value growth, dividends from participating whole life policies are not guaranteed. Dividend payments depend on the insurance company’s financial performance each year. In some years, no dividends may be distributed at all.

Can the death benefit ever be decreased by the insurer if cash value drops?

No, the death benefit cannot be reduced by the insurance company. Even if cash value underperforms, your guaranteed death benefit remains intact as long as premiums are paid.

What is the difference between whole life and universal life insurance in Canada?

The main difference is that universal life insurance offers more flexibility. With Universal Life, you can adjust your premium payments and death benefit amount. Whole life policies have fixed premiums and death benefits. Universal life also gives you investment options for the cash value, while whole life has a minimum guaranteed return.

Do whole life insurance premiums ever go down in Canada?

Whole life insurance premiums remain level and will not decrease over time. The premium rate is set when you first purchase the policy based on your age and health. Some policies allow you to pay premiums faster through limited pay options, but the monthly or annual premium itself does not decline.

Is return of premium whole life insurance available in Canada?

Some insurers offer return of premium riders, where your beneficiaries can get all premiums back if the insured dies before a certain age, such as 90. But pure return of premium whole life policies are not common in Canada. Most whole life plans in Canada focus on lifelong coverage rather than premium returns.

Can I deduct whole life insurance premiums in Canada?

For personal insurance, you cannot deduct whole life insurance premiums. However, for business-owned policies, premiums are tax-deductible in Canada when structured properly. Consult a tax advisor about setting up insurance for business purposes.

Can I purchase whole life insurance in Canada after age 65?

Yes, most insurers allow applicants over 65 to apply for whole life insurance but at higher premium costs due to increased age risk. Approval chances also become lower as you enter advanced ages, depending on your health. Your coverage options may be more limited.

Article Sources
  1. canada.ca/en/financial-consumer-agency/services/insurance/
  2. moneysense.ca/spend/insurance/life-insurance/what-is-whole-life-insurance/
  3. whole life insurance – lifebuzz.ca

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