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Whole life insurance

Whole life insurance is permanent cover. As long as the premiums are paid, it stays in place for your whole life and pays a lump sum, generally tax-free, to the people you choose when you pass away.

It also builds cash value over time, which is a savings side that you can usually borrow against or access in other ways.

How it works

You choose an amount of cover and pay premiums that stay level. Because the policy is designed to last for life, premiums are higher than term insurance for the same amount of cover.

Part of what you pay builds cash value inside the policy. The guaranteed cash value starts small and grows slowly in the early years. Many policies are participating, which means they may pay dividends based on the insurer’s results. Dividends are not guaranteed.

Some policies let you pay premiums for a set number of years, such as 10 or 20, and then stay in force for life. You can often borrow against the cash value, or use it in other ways, but doing so can reduce the death benefit or have tax consequences, so it is worth understanding before you decide.

You choose an amount of cover and pay premiums that stay level. Because the policy is designed to last for life, premiums are higher than term insurance for the same amount of cover.

Part of what you pay builds cash value inside the policy. The guaranteed cash value starts small and grows slowly in the early years. Many policies are participating, which means they may pay dividends based on the insurer’s results. Dividends are not guaranteed.

Some policies let you pay premiums for a set number of years, such as 10 or 20, and then stay in force for life. You can often borrow against the cash value, or use it in other ways, but doing so can reduce the death benefit or have tax consequences, so it is worth understanding before you decide.

For illustration only: someone who wants to leave a gift to their children, cover final expenses and taxes at death, or pass on a family business might choose whole life because the cover is certain to be there, whenever it is needed.

Keep in mind

• It costs more than term for the same amount of cover.
• Cash value grows slowly at first. Cancelling in the early years can mean getting back less than you paid in.
• Dividends, if the policy pays them, are not guaranteed.
• Borrowing from or withdrawing cash value can reduce the death benefit and may have tax consequences.
• The insurer will ask about your health and lifestyle, and may require a medical exam or records.

Common questions

Why does it cost more than term insurance?

Term covers you for a set period only. Whole life is designed to last your whole life and builds cash value along the way, so the premium is higher for the same amount of cover.

What is a participating policy?

A participating policy may pay dividends based on the insurer’s experience. They can be used in different ways, such as increasing your cover. Dividends are not guaranteed. A non-participating policy does not pay dividends and has fixed values.

Can I access the cash value?

Usually, yes, through a policy loan, a withdrawal or by cancelling the policy. Each option can affect the death benefit and may have tax consequences, so I will explain how it would work for your policy before you decide.

What if I want to stop paying premiums?

It depends on the policy. Some let you stop after a set number of years. Others let you use the cash value to keep cover going or switch to a smaller paid-up policy. Stopping without a plan can mean losing cover or getting back less than you paid.

Is the payout taxable?

In Canada, life insurance death benefits paid to a named beneficiary are generally tax-free. Tax rules on cash value and withdrawals are more complex, so check tax questions with an accountant.

Also see: Term life insurance · Critical illness insurance · Universal life insurance

This page is general information, not personal advice or an offer of coverage. Costs, eligibility and policy terms vary by insurer and by your health and situation. See my licensing and disclosure page.