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What are the 5 types of life insurance in Canada?

by Mark Cluett
8 min read

Most people assume there are two types of life insurance in Canada – term life insurance and whole life insurance.  But, there’s more to the different types of life insurance than that.

When you decide to purchase something, choices are usually a good thing. However, choosing from the different types of life insurance in Canada isn’t like deciding what flavour of ice cream to try for dessert. Each different type of life insurance offers different benefits AND drawbacks. And we regret to inform you there are no pistachio flavoured policies available when planning your financial security.

We’ve listed the 5 different types of life insurance available in Canada and compare them so you are a little more prepared to make a big decision.

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What is term life insurance?

Term life insurance is a type of life insurance product that covers you for a specified length of time, called a term, and pays a set amount to your beneficiaries if you die, within the term. There are different term lengths (such as 10, 20, 25,30 years or up to age 65) available.

Some life insurance companies in Canada (such as RBC life insurance or Industrial Alliance) also allow you to pick your own term for coverage. You can pick a discrete number of years that you want the term life insurance coverage to last. Such products are called “pick-a-term” products.

What is the benefit of covering you for a specific period of time? Your insurance death benefit is able to cover most of your insurance needs that are temporary in length. This could include your outstanding mortgage or coverage for your children’s education. Because of this very reason, the rates are usually more affordable for term life insurance.

When you buy term life insurance, you choose your coverage amount and coverage term. Your insurance company determines your premiums based on your coverage amount and coverage term; those premiums stay level through the coverage term.

At the end of the original coverage term, you may have the option to renew your term life insurance policy, although at a higher cost. Alternatively, you can let your terl life insurance coverage expire.

Some policies also let you convert your temporary term life insurance into lifelong or permanent life insurance, prior to reaching a specified age

Learn more about term life insurance and the best life insurance companies in Canada.

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What is whole life insurance?

Whole life insurance (also known as permanent insurance) covers you for life and there is an investment or cash value component associated with your policy. This is also sometimes called permanent insurance. As you pay into your policy over time, it builds investment value.

You can cash out the value of your whole life insurance policy to supplement your retirement income or help pay expenses. In some cases you can borrow against the value of a whole life insurance policy. This insurance usually has a higher premium, since you are covered for your entire life.

Learn more about whole life insurance or the best whole life insurance companies in Canada.

What is limited pay whole life insurance?

Limited pay whole life insurance is similar to whole life, except the payment term is specified, perhaps for 20 or 30 years. Once you pay premiums for the specified time, the life insurance is guaranteed without paying additional premiums. This policy typically has the highest insurance costs since premiums are front-loaded.

What is universal life insurance?

Universal life insurance is similar to whole life insurance, except there is a self-directed long term investment component. Your insurer gives you options for investing the cash value of your policy so it can be considered a way to save for retirement. If you are a savvy investor or mindful of estate planning, you may find that universal life insurance is a more appealing option. That said, universal life insurance does require more hands-on activity than other life insurance coverage options.

What is term-to-100 insurance or term life insurance to age 100?

Term to 100 insurance is a whole life policy that doesn’t have a cash-out option, so it only pays upon your death (making it a little cheaper). It offers a bridge between term and whole life insurance. Plus, if you make it to 100 years, you’ll no longer be required to pay premiums and can still retain the coverage.

Comparison of different types of life insurance

We asked our advisors what questions they receive about the differences between types of insurance in Canada. Here the most common inquiries, plus the answers.

Key questionsTerm LifeTerm-To-100Whole Life
(Participating)
Universal Life

Is it a form of temporary coverage?
Yes, initial term is fixedNoNoNo
Is it a form of permanent coverage?NoYes, lifelong coverageYes, lifelong coverageYes, lifelong coverage
Conversion to permanent product possible?YesNot required as already a permanent productNot required as already a permanent productNot required as already a permanent product
Does it provide a death benefit?YesYesYesYes
Does the death benefit change with time?NoNo, benefit is fixed for lifeYes, death benefit can increase with dividends receivedYes, death benefit can increase or may even reduce (if the mortality cost increases or the account value reduces)
Policy cost?Initial cost is lowHighHighHigh
Does it provide level (flat) premiums?Yes, premiums are flat for initial term only; increase significantly thereafterYes, premiums are fixed for lifeYes, premiums are fixedNo fixed premium amount
Does it allow  premium adjustments?NoNoNoYes, premium payments can be flexible
Are modal factors applied to premium payment?Yes – modal factor applied; annual premiums get a discountYes, modal factor applied; annual premiums get a discountYes -modal factor applied to non-annual premium payment; annual premiums get a discountNo
Any flexibility in making premium payments?NoGenerally, noYes – limited pay terms are available.Yes – you can choose the frequency of payment periods
Does it pay interest or dividends?NoNoYes, dividends onlyYes, interest payments only
Does it have a cash component?NoNo cash componentYesYes
Can you borrow against or withdraw from policy?NoNoYesYes
Do you get control over investments?No investment componentNo investment componentNo, investments directed by the insurerYes, you choose from a range of investment options provided by the insurer
Can the policy lapse?Yes, 30 days after premium due dateYes, 30 days after premium due dateNo, as long as cash values can continue to cover premiumNo, as long as cash values can continue to cover premium

What is the best type of life insurance for me?

Finding the perfect life insurance can be a challenge and the answer isn’t always straightforward. Check out our life insurance needs calculator to see what sort of coverage you need and start researching term life insurance policies that best fit your lifestyle, financial plans, and budget. Once you figure out your coverage needs, you can start comparing life insurance quotes online.

Read more: How our life insurance needs calculator works.

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