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Whole life insurance in Canada is a popular option for people who want permanent coverage for their entire life. Whole life insurance is different from term life insurance. Term life covers you for a set time. Whole life insurance lasts your whole life.
As long as you pay your premiums, your benefits will get a tax-free death benefit when you die. Whole life insurance offers more benefits than just financial security for loved ones, including potential tax benefits.
One important thing to know about whole life insurance is if it is participating or non-participating. Understanding these two types will help you make an informed decision about which policy best fits your needs.
At Aarna Insurance, our advisor can help you find the best option for you and your family. And helps to provide you with the best life insurance coverage.
Following table will give you a quick insight into Participating and Non-Participating Whole Life Insurance policies in Canada:
| Feature | Participating | Non-Participating |
|---|---|---|
| Dividend Potential | Yes - insurers can receive dividends based on the insurer’s financial performance. | No - These policies do not offer dividend payments. |
| Cash Value Growth | Cash value grows with the potential for dividend reinvestment, which can accelerate growth and grow over time. | Cash value grows at a fixed, guaranteed rate without dividends. |
| Premiums | Typically higher because of the potential for dividend payments and long-term growth opportunities. | Lower and more stable premiums without the dividend feature. |
| Investment Risk | High: The insurance company's financial performance influences the returns. | Low risk: The guarantee ensures you won’t face any risk with investment performance. |
Participating Policies: These are suitable if you are looking for long-term growth potential.
They work well if you can handle slightly higher premiums. You will also benefit you from the company’s financial success.
Non-Participating Policies: These are better if you prefer lower, stable premiums.
They are also ideal if you do not want to take on any investment risks with your life insurance as compared to universal life insurance.
What Is Whole Life Insurance?
Whole life insurance is a type of permanent life insurance that offers coverage for your entire life.
A whole life policy lasts as long as you pay the premiums.
This is different from term life insurance and universal life insurance, which ends after a certain number of years.
By locking in a fixed premium rate, you can budget better.
If you change your health or your age, you won't have to worry about changing your insurance costs. This stability can bring peace of mind, providing financial security over the course of your life.
With whole life insurance, your premium payments stay the same for the policy's life. This gives you predictable and steady costs. This is especially helpful for long-term planning. You won’t have to deal with rising premiums when you renew term life insurance.
One of the unique features of whole life insurance is the cash value component.
Along with paying for insurance, part of your premium enters a savings account called Cash Value.
Over time, this account grows and accumulates interest, becoming a potential financial asset.
The cash value builds tax-deferred, meaning you won't pay taxes on it as it grows.
You can access the guaranteed cash value by borrowing against it or making a withdrawal.
This can help you pay for bigger expenses like education, emergencies, or retirement.
However, it’s important to note that accessing these funds can reduce the death benefit if not repaid.
The death benefit of whole life insurance guarantees that your benefits will receive a fixed amount upon your death.
This guaranteed payout is crucial for providing long-term financial security for your loved ones.
Your benefits can use the death benefit to pay for final expenses.
This includes funeral costs, debts, and living expenses.
The insurer usually pays out the death benefit tax-free. This means your benefit gets the full amount.
This can be important, especially during tough financial times.
For more information about insurance policies and the industry, visit the Office of the Superintendent of Financial Institutions (OSFI). OSFI regulates and supervises all insurance companies in Canada to ensure their financial stability and the protection of insurers.
Whole life insurance comes in different varieties, each with specific features. In Canada, the following types of whole life insurance that consumers can consider:
This policy has fixed premiums. It provides a guaranteed death benefit and builds cash value over time and gives guaranteed cash value. The insurer cannot receive any dividends from the insurance company's profits.
With this type of insurance, the insurers can get dividends.
Participating in Whole Life Insurance allows insurers to receive dividends.
You can receive these dividends as cash. You can also use them to lower premiums or reinvest them to increase the policy's value.
With this option, you pay premiums for a set time, like 10, 15, or 20 years. You do not pay for the rest of your life. After the payment period ends, the insurer does not need to pay premiums anymore. However, the coverage and guaranteed cash value grow overtime.
You pay the entire policy amount in one lump sum. Individuals typically use this to shelter wealth or pass it on to insurers.
For more detailed information on insurance products, visit the Canadian Life and Health Insurance Association (CLHIA).
Choosing between whole life insurance and term life insurance is an important decision for many people seeking coverage. Below is a comparison of both to help you make an informed decision:
| Feature | Whole Life Insurance | Term Life Insurance |
|---|---|---|
| Coverage Duration | Permanent (as long as premiums are paid) | Limited to a specified term (e.g., 10, 20, or 30 years) |
| Premiums | Higher, but fixed for life | Lower initially, but increase upon renewal |
| Cash Value | Builds cash value over time that you can borrow against | No cash value component; pure protection |
| Dividends | May receive dividends depending on the policy | Not applicable |
| Death Benefit | Guaranteed, paid out no matter when you die | Only paid if you die within the term; no payout after expiry |
| Ideal For | People seeking lifelong coverage and wealth-building options | Individuals seeking affordable, temporary coverage |
Term life insurance is usually cheaper and works well for short-term needs.
This includes covering a mortgage or replacing income for a set time.
Whole life insurance is better for people who want long-term protection.
It also offers the added benefit of building cash value over time.
The Financial Consumer Agency of Canada (FCAC) provides helpful resources.
These resources can help you compare term and whole life insurance policies.
They can also assist you in evaluating your life insurance options.
These resources can help you evaluate your life insurance options.
You Have Dependents: If you have children, a spouse, or family members relying on your income, whole life insurance ensures they’ll receive financial support if something happens to you.
You Want to Leave a Legacy: Build wealth or leave a lasting legacy, whole life insurance is an excellent option. The death benefit can provide tax-free income to your heirs, covering estate taxes or other financial obligations.
You Need Lifelong Coverage: To get life insurance that will last as long as possible, you should buy whole life insurance. It does not end after a certain time like term insurance does.
You’re Interested in Tax-Sheltered Growth: Beyond RRSP and TFSA accounts, whole life insurance offers another opportunity to shelter money from taxes while it grows in the policy's cash value.
Additionally, high-net-worth individuals often use whole life insurance to manage estate taxes, ensuring their heirs have the liquidity they need without forcing them to sell off assets like property or investments. For more information on financial planning, including life insurance, the Canada Revenue Agency (CRA) provides insights into tax benefits and considerations.
For more in-depth knowledge, some specific scenarios and FAQs about Whole Life Insurance in Canada, please refer to our Blogs
Whole life insurance comes with many advantages that make it a worthwhile option for many Canadians. Here are some of the key benefits:
Whole life insurance guarantees that your insurers will receive a payout, no matter when you pass away, as long as you maintain your premium payments. This gives you peace of mind that you will always financially protect your loved ones.
A unique feature of whole life insurance is the cash value component, which acts as a savings vehicle. Over time, as you pay premiums, the cash value grows, earning interest. You can borrow against this value or withdraw it if needed, offering a source of funds for emergencies or opportunities.
Your death benefit remains locked in, ensuring that your insurers receive the agreed-upon amount tax-free. You can use this money to cover final expenses, pay off debts, or help your family maintain their standard of living.
The cash value of your policy grows tax-deferred, meaning you won’t have to pay taxes on the growth until you withdraw the funds. Additionally, the death benefit is typically tax-free, making it a useful estate planning tool.
Some whole life insurance policies are eligible to receive dividends, which are a portion of the insurer’s profits. You can use dividends to reduce your premiums, accumulate them in the policy, or even take them as cash. However, the insurer's performance determines whether dividends are guaranteed.
For more information on estate planning benefits of whole life insurance, visit the CLHIA or contact any life insurance company.
Riders are optional add-ons to your insurance policy that provide extra benefits or flexibility. Understanding the types of riders available with whole life insurance can help you tailor your coverage to meet your unique needs.
This rider allows you to waive your premium payments if you become disabled or unable to work because of illness or injury, keeping your policy active without additional cost.
Provides an additional death benefit payout if the insured dies in an accident. This can be particularly valuable for those with high-risk occupations.
Covers the life of your children under the same policy, providing a death benefit in case of the child's untimely passing.
Some policies allow you to access a portion of your death benefit to pay for long-term care if you become chronically ill.
These riders help you adapt the policy to your circumstances, providing additional security and peace of mind.
To better understand how whole life insurance works financially, let’s go through a few simplified example calculations.
Imagine you purchase a whole life policy with an annual premium of $3,000. A portion of your premium goes towards the death benefit and administrative costs, while the remaining portion builds cash value.
By the end of the first year, the cash value would be approximately $1,040 ($1,000 + $40 in interest).
Over time, as more of the premium directs toward the cash value and less toward insurance costs, the cash value will grow more rapidly.
If you have a participating policy and your insurance company declares a dividend, you may receive a small return on your policy. Let’s say the company declares a dividend of $300.
You can choose to:
These options allow you flexibility in how you manage your policy over time.
John and Mary are a married couple in their 50s, both successful business owners. As they grow older, they’re concerned about estate taxes that will be due upon their deaths. To protect their assets and ensure their children can inherit the family business without the burden of heavy taxes, they invest in a whole life insurance policy.
The Plan: John and Mary each purchase a whole life policy with a $2 million death benefit. They designate their children as beneficiaries.
The Benefit: Upon their passing, the estate uses the death benefit to cover estate taxes, providing liquidity without forcing their children to sell the family business. The policy also accumulates cash value, which John and Mary can access during their lifetime for other expenses or investment opportunities.
For more on how whole life insurance benefits estate planning, visit the Canada Revenue Agency (CRA) or contact Aarna Insurance.
Sophia is a 35-year-old mother of two with a stable career. She wants to ensure her children are financially secure, no matter what happens to her. Since she’s concerned about long-term coverage and not just short-term needs, she opts for a whole life insurance policy.
The Plan: Sophia purchases a whole life insurance policy with a $500,000 death benefit and adds a child term rider to cover her two children.
The Benefit: The policy guarantees that her children will receive a tax-free death benefit whenever she passes away, helping to cover educational expenses, living costs, and other financial needs. The child rider provides a death benefit for her children if anything were to happen to them. Over time, Sophia’s policy builds cash value, which she can tap into for retirement or emergencies.
While whole life insurance offers many benefits, there are also a few things you should keep in mind:
Higher Premiums: Whole life insurance typically comes with higher premiums compared to term life insurance. This is because the policy lasts for your entire life and includes the cash value component. If you're looking for budget-friendly coverage, term life insurance may be more appropriate.
Policy Loans: You can borrow against the cash value of your policy, but this comes with risks. Loans accrue interest, and if unpaid, they will reduce the death benefit your insurers receive. Important to understand the terms of these loans before using this feature.
Dividends Aren’t Guaranteed: While you might receive dividends as a potential benefit, companies do not guarantee them. The availability of dividends depends on the financial health of your insurance company, so it's wise not to rely on them as part of your financial strategy.
Medical Underwriting: Like all life insurance, the cost of whole life insurance depends on factors such as your age, health, and lifestyle. Most whole life policies require a medical exam and health history evaluation to determine your risk level.
Our advisors at Aarna Insurance, the best insurance advisor in Canada, recognize that navigating the world of insurance and financial planning can be challenging and stressful. We are always willing to work with you, spend as much time as it takes to help you make an informed decision.