Term life insurance vs. whole life insurance: what’s the difference? – Updated 2023
There are some key differences between term versus whole life insurance. Term life insurance protects you for a certain number of years. Whole life insurance protects you for your whole life and generates cash value. Term life insurance is usually more affordable but whole life insurance has value you can access now.
Let’s face it — no one likes thinking or talking about their own death. But, when it comes to having a financial safety net for your family, life insurance is something that should definitely cross your mind.
We all want to make sure that our families are financially secure at all times. This becomes even more important at a time when we’re not around to provide financial support. During such times, life insurance can give you peace of mind in knowing that your family will be well taken care of no matter what.
When you’re thinking about what kind of policy you should get to protect your family, you can choose between two main types of life insurance: term life or whole life. Understanding their differences can help you to know which one is the right choice for your family.
And we give you a cheat sheet to go by in this article. Read on to learn more.
What’s the difference between term versus whole life insurance?
The biggest difference between term life insurance and whole life insurance is how long the policy lasts. Term insurance covers you for a specific time period that you choose. Whole life gives you lifetime insurance coverage. But that main difference also leads to many smaller differences.
We take a closer look at the different features later on in this article. But first, let’s take a look at what term and whole life insurance are.
What is term life?
Term life insurance is life insurance that lasts for a specific period of time known as a Term. The term can be a fixed number of years or until you reach a certain age (e.g. age 65). You pay premiums to the life insurance company until the expiry of the term.
In return, your beneficiaries are entitled to receive a tax-free death benefit if you die within the term of the policy. Once the term ends, your coverage also expires, and you can stop paying premiums.
Term life policies are usually offered for periods ranging from 10, 20, or 30 years to specific ages such as age 65, after which the coverage expires. Some companies will also allow you to pick a term, in which case you can choose your own coverage period to meet your needs.
Put simply: term life insurance is easier to understand and has lower prices.
What is whole life?
Whole life insurance is a form of permanent life insurance that provides you with coverage from the day you get your policy until the day you die. In other words, it protects you for your entire life. As long as you pay your premiums, your policy never expires — it’s as simple as that.
This type of insurance gives your family financial protection and lets you invest at the same time. Most whole life policies come with something called a cash value component.
As you pay your premiums, part of that money is invested and generates a tax-deferred cash value that grows over time. You can then access it during your lifetime.
Some policies can also pay dividends. And, your death benefit can actually increase over time with the savings component offered by whole life.
There are different types of permanent life insurance, like universal. But whole life is the most common type. Since permanent insurance policies last your entire lifetime and keep the same value you put into it, they typically have higher premiums than term life.
What are some of the different features between term life vs whole life?
The biggest difference between term life insurance and whole life insurance is how long the policy lasts. Term insurance covers you for a specific time period that you choose. Whole life gives you lifetime insurance coverage.
But that main difference also leads to many smaller differences. Check out the chart below for a closer look.
Term versus whole life insurance: key differences
|Term life insurance||Whole life insurance|
|Temporary coverage for a fixed period of time e.g. 10 years, 20 years, 25 years||Guaranteed lifelong coverage|
|Best suited for temporary needs (mortgage, children’s education, lifestyle protection)||Best suited for permanent needs (estate planning, retirement income, final expenses)|
|Premiums only stay the same until the end of the term||Premiums stay the same for life|
|Low premiums for the initial term||Higher premiums because of lifetime coverage and savings component|
|Death benefit but no cash value component||Death benefit and access to a growing cash value|
|No paid-up value or features||Can be paid-up after a specific period (e.g. 10 or 20 years)|
|Death benefit stays the same||Death benefit may increase with dividends|
|Loans/withdrawals cannot be taken against term life policies||Policy loans can be taken and dividends may be withdrawn|
|Death benefit only paid out on policy holder’s death||Benefits can be accessed as dividends or loans during policy holder’s lifetime|
|Can be converted into permanent policies||Does not need to be converted|
|Will lapse is premiums unpaid for 30 days||Will continue to be in force as long as cash value can cover premium|
What are the pros and cons of term life insurance?
- Simple to understand
- Inexpensive for the initial term
- Can be converted into permanent coverage
- Guaranteed level premiums for the initial term (price won’t change until the term ends)
- Flexible — you can tailor your term to fit specific short-term needs
- Coverage is temporary
- Death benefit is not guaranteed — you can outlive your policy
- Premiums increase if you renew your policy
- No cash value or savings component
- Cannot borrow or cash in on the policy
What are the pros and cons of whole life insurance?
- Permanent coverage — never expires
- Guaranteed level premiums for life (price won’t ever change)
- Savings component — generates cash value and annual dividends
- Can borrow or cash in on the policy
- Premiums can be expensive
- Investment returns may not be as large as with other investments
How much does whole life cost vs term life?
Term life insurance normally costs a lot less than whole life insurance. This is because whole life insurance has extra features like cash value and dividends.
The chart below shows you how much a man or woman might pay for a term versus whole life insurance policy for $250,000 in coverage.
Cost comparison of term life vs whole life – $250K
*Representative values based on average costs of term and whole life premiums from Canada’s best life insurance companies.
Is term life or whole life better?
There is no “better” insurance between term vs whole life. Instead, the best life insurance policy is the one that meets the needs of you and your family. This will be different for everyone because it depends on your unique circumstances.
In most cases, term life insurance is better when you’re younger because it’s cheap and can help to secure your immediate financial needs.
Whole life insurance is better for financial protection in the long run. It helps to make sure your family won’t have to struggle with money needs when you’re no longer around.
Below, we’ve given you some general reasons why term life or whole life might be right for you:
4 reasons why term life may be right for you
Term life insurance is the best option if:
- Your needs are temporary
- You have a tight budget
- Your needs are simple
- You’re still deciding
2. You have a tight budget
Term is the cheapest type of life insurance policy. It’s a good option if you’re on a budget and you want financial protection that doesn’t come at a high cost. Because it only lasts for a set period of time, term life is not too expensive.
3. Your needs are simple
Term insurance policies are very straightforward and easy to understand. This makes them a great choice if your needs are also simple or you want to cover one or two specific things.
4. You’re still deciding
Maybe you’re still deciding on your coverage needs but want the peace of mind of protection while you weigh your options. Term life is a good option to cover you while you’re thinking about if you should convert a policy into permanent life insurance or buy more coverage.
6 reasons why whole life may be right for you
Whole life insurance is the best option if:
- You want to be covered into old age
- You prefer to have the same rate for your entire life
- You want to cover final expenses
- You want built-in cash value to help supplement retirement income or to cover other financial needs
- You want to leave funds behind for family or dependents
- You don’t have a strict budget
1. You want to be covered into old age
Whole life is a good option if you want to make sure you have financial protection for the rest of your life, so you don’t have to worry about it when you’re older.
2. You prefer to have the same rate for your entire life
A whole life policy is also the best option for you if you want to keep the same rates for the rest of your life.
While term life is the cheaper type of insurance to start with, premiums can increase dramatically if you want to renew your policy later on. With whole life, you get the same cost no matter how long you keep your policy.
4. You want built-in cash value
If you like the idea of having some savings with your policy, then whole or permanent insurance may be the right protection for you. A savvy money-mover may be better off doing their own investment, but this type of policy can be a good option for a hands-off approach.
5. You want to leave funds behind for family or dependents
A whole life plan gives you a guaranteed way to leave a large amount of money to your family, dependents, or even a charity, group, or association. If you want to provide a legacy no matter what, this is a good way to do it.
6. You don’t have a strict budget
Whole life policies are the more expensive option for life insurance. But the extra cost can be well worth the price. There are also options to pay all of your insurance premiums early. This way, you would still have lifelong coverage but you won’t have to actually pay for it anymore by the time you reach retirement age.
Which companies offer term life or whole life coverage?
Most of Canada’s biggest life insurance companies offer both term and whole life. This includes many of the ones we work with, like:
- Assumption Life
- BMO Insurance
- Canada Life
- Canada Protection Plan
- Empire Life
- Equitable Life
- Foresters Financial
- Industrial Alliance
- RBC Insurance
- And more
Or schedule a call with one of our expert life insurance advisors who can help you determine which company would be best for you.
Should I get a whole life or term life insurance policy?
Whether you should get term life or whole life insurance plan depends on you and your family. The differences between these two types of insurance policies will help you to figure out which would be best.
Still, it’s not always easy to figure out which one you need. Budget constraints might be enough for some Canadians to choose. For others, the choice between the two is not as simple as reading an article.
But you can always get professional help if you need it!
Our friendly, licensed advisors are all licensed and have years of experience helping Canadians choose what kind of protection is best for their needs and their budget.
Schedule a call today and let our experts assess your unique circumstances. They’ll walk you through the best coverage options and help empower you to make the right decision for your family.
- Term life is more affordable and usually chosen by younger Canadians with temporary needs (raising children, covering mortgage)
- Whole life can be expensive but provides lifelong protection, guaranteed level premiums, and an investment component
- You can speak to PolicyAdvisor agents to help find out whether term vs whole life insurance would be the best fit for you and your family