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What Is Whole Life Insurance In Canada?


What Is Whole Life Insurance In Canada
Reading Time: 4 Min

Whole life insurance covers the policyholder from the moment they start their policy until their death. If you’re in Canada and want to purchase whole life insurance, this article outlines the features of most Canadian whole life insurance policies and how to choose the best one. 

Without further ado, let’s delve into the basics of whole life insurance in Canada.

How Does Whole Life Insurance Work?

Whole life insurance is a type of permanent life insurance. This means you pay the premiums up until your death. However, this does not mean you aren’t allowed to cancel it. A permanent life insurance policy simply means the policy doesn’t expire until you do. 

Whole life insurance, like all life insurance premiums, pays out a lump sum to your beneficiaries after your death. This sum is known as the death benefit. Alongside the death benefit, whole life insurance typically offers a cash value component. A portion of your life insurance premium goes into a cash value account to slowly accumulate until your death. This account typically offers a growth component, such as interest. The cash value is paid to your beneficiaries after your death.

In summary, each whole life insurance policy has the following key features:

  • Tax-Free death benefit payout: The death benefit sum can range from $5,000 to a few million dollars. Death benefit payouts are not taxed in Canada.
  • Lifetime coverage: Whole life insurance policies are active up until the moment of the policyholder’s death. 
  • Cash value: Whole life insurance accumulates cash value. This value can be used as collateral for a loan if you wish to access it while alive. 
  • Regular premiums: When you purchase a whole life insurance policy, you pay regular premiums on a monthly, semi-annual, or annual basis. The premiums are generally higher than those for term life insurance but remain fixed throughout the policy term.
  • Riders (optional): Some whole life insurance policies offer “riders” – extra benefits to include in your policy. These include critical illness coverage, accidental death coverage, or accelerated death benefits

One of the key benefits of whole life insurance policies is the cash value component. While non-permanent “term” life insurance policies only offer benefits to your loved ones after your death, you can access the cash value of your life insurance before your death. If enough cash value accumulates, you can take out a loan against its value to fund other projects. Take note that this will lower your final death benefit payout.

How Does Term Insurance Work?

It can be helpful to consider whole life insurance within its context. Other types of insurance may offer less “permanent” policies, such as term life insurance. The key features of term life insurance are as follows: 

  • Fixed Term: When you sign up for term life insurance, you can choose a term of 10, 15, 20 or 30 years. Some insurers offer longer terms, such as RBC with 40 years. If you outlive your term, you need to renew your policy, paying higher premiums every time (due to age-related risk assessments). 
  • Lower Premium payments: Term life insurance is cheaper than whole life insurance because it’s temporary and has no cash value component. 
  • No cash value: Term life insurance does not offer cash value.
  • Tax-Free Death benefit payout: Term life insurance offers a death benefit payout if you pass away during your policy term. 

The choice between whole life insurance and term life insurance depends on your individual needs and circumstances. If you are looking for lifelong coverage and the potential for cash value accumulation, whole life insurance may be the better option. However, if you only need coverage for a specific period term life insurance may be more suitable.

What To Keep In Mind When Getting Whole Life Insurance In Canada

Before purchasing a whole life insurance policy in Canada, there are several factors to consider. To find the best life insurance policy for you, keep the following in mind: 

  • Evaluate financial goals and needs: Determine how much coverage your loved ones or beneficiaries will need after your death. Funeral costs, outstanding debts, and ongoing projects might all need additional funds. Do the math now so your family doesn’t have to worry later. 
  • Budget: Consider your budget. Whole life insurance premiums tend to be more expensive than term life insurance. Ensure you can afford the monthly payments and contribute consistently so your policy doesn’t lapse. 
  • Terms and conditions: Each insurer will have slightly different terms and conditions. Look out for limitations, exclusions, and the potential cash value growth. 
  • Company reputation: Your insurer should be reputable and have a good customer service track record. You want a company that can fulfil its side of the deal when the time comes. 

Remember, in the end, your loved ones will benefit the most from your life insurance – so pick one that will meet your current budget and their future needs.

Popular Whole Life Insurance Policies In Canada

In Canada, there are various whole life insurance policies to suit different needs and preferences. Some policies offer level premiums, meaning the premium payments remain the same throughout the policy life. Other policies may have adjustable premiums, allowing you to modify the premium payments over time. 

The table below summarises some of the whole life insurance policies offered in Canada:

Popular Whole Life Insurance Policies In Canada

InsurerCoverageConditionsOther info
Sun Life Go Guaranteed whole life insuranceUp to $25,000 No medical tests are necessary. Covers one person, the death benefit is not paid out if the death is caused by drunk driving or suicide.
SunSpectrum Permanent Life IIUp to $10 million. Will likely need to answer a medical questionnaire. Several extra benefits, including a living benefit if you are diagnosed with a terminal illness.
RBC Growth Insurance$25,000 – $25,000,000Does not apply if you die via suicide in the first two years.Cash value is accessible after 5 years, and can offer dividends.
Manulife Par with Vitality PlusStarts at $100,000Requires you to use a smartwatch and to track healthy activities to get access to benefits for living a healthy lifestyle.This insurance pairs with Vitality to offer you extra benefits (dividends) for living a healthy life.
Manulife Performax GoldCoverage starts at $25,000N/AOffers flexible premiums, access to equity, and access to your cash value if you become disabled.

It’s difficult to estimate a standard premium price, as this will vary drastically based on your age, gender, family history and lifestyle. To learn how much you might pay, you can use an online calculator to estimate how much whole life insurance will cost based on your details.

What Are The Tax Advantages Of Whole Life Insurance In Canada?

You already know that the lump sum death benefit is not taxed in Canada. But are there any other tax benefits attached to this insurance? The answer is yes! The main tax benefits of whole life insurance are listed below:

  • Tax-Free Death Benefit: The death benefit is not subject to income tax. 
  • Tax-deferred growth: Your cash value is not subject to annual taxation, which allows it to accumulate and compound over time. 
  • Tax-Free policy loans: If you borrow against your policy’s cash value, the loan proceeds are generally not taxable.

Remember that tax laws and regulations change over time. Check your current state’s tax laws regarding life insurance to avoid surprises.

Conclusion: Is Whole Life Insurance The Right Choice For You?

In summary, whole life insurance in Canada offers lifelong coverage, a cash value component, and various tax advantages. It’s a guaranteed way to make sure you leave something behind for your loved ones after your death and can set your mind at ease about their well-being after you’re gone. 

When looking for the right policy, remember to balance your budget with your family’s future needs. And, as always, remember to read the fine print.

Author Bio

Mohamed Konate

Mohamed Konate is a personal finance expert, blogger, and marketing consultant based out of Toronto. He is a former financial services professional who worked for many years at major Canadian financial institutions where he managed the marketing strategy around various financial products ranging from credit cards to lines of credit. Mohamed is passionate about personal finance and holds a Bachelor in Business Administration from the University of Quebec (Montreal) and a Master in International Business from the University of Sherbrooke (Quebec).He is also the author of the Canadian Credit Card Guidebook. Read his full author bio