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Term vs whole life insurance: Which to choose? – Updated 2024

SUMMARY

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.

IN THIS ARTICLE

Most of us understand that life insurance is an important tool to protect your family and meet your needs. But not many people know that there are two different types — or understand the difference between term versus whole life insurance.

Choosing the right one can make a big difference in the kind of protection you give your family. We provide a handy cheat sheet to help you decide in this article.

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What’s the difference between term versus whole life insurance?

The biggest differences between term life insurance and whole life insurance are:

  • Term life insurance lasts for a set number of years and is more affordable coverage
  • Whole life insurance lasts for your entire life, has a built-in investment component that builds cash value, and costs more

Let’s look at quick definitions of each type.

Author Photo
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.
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Carly Griffin
Senior Insurance Advisor, PolicyAdvisor.com

What is term life insurance?

Term life insurance is a type of insurance that covers you for a specific period of time, usually 10-30 years. If you pass away during that term, your family or whoever you name as a “beneficiary” gets a set amount of money called a “death benefit” from the insurance company.

Term life insurance pros and cons

Pros Cons
Simple to understand Coverage is temporary
Low costs for the first term Death benefit is not guaranteed — you can outlive your policy
Can be converted into whole life insurance Premiums increase if you renew your policy for another term
Price stays the same for the entire term (Guaranteed Level Premiums) No investment or cash value component
Flexible — you can tailor your term to fit specific short-term needs Cannot borrow or cash in on the policy

Read our full Guide to Term Life Insurance in Canada

What is whole life insurance?

Whole life insurance is a type of insurance that covers you for the rest of your life. Most also build something called “cash value” that you can access during your life to help you save more money. And, some can also pay you dividends every year.

Whole life insurance pros and cons

Pros Cons
Permanent coverage — never expires Premiums can be expensive
Price stays the same for the entire term (Guaranteed Level Premiums) Investment returns may not be as large as with other investments
Savings component — cash value accumulation and annual dividend payments
Can borrow or cash in on the policy

Read our full Guide to Whole Life Insurance in Canada

What are the different features of whole life insurance versus term life insurance policies?

We’ve talked about the biggest differences, but the chart below goes into more detail about the different key features between term vs whole life insurance.

Term versus whole life insurance: key differences

Term life insurance Whole life insurance
Temporary coverage for a fixed time period 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)
Premium payments only stay the same until the end of the term Premium payments 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
Pay premiums for life Options to pay off premiums early
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 dividend payments 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
Death benefit payout not guaranteed — you can outlive your policy Guaranteed death benefit payout
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

How does the cost compare between whole life vs term life?

Term life policies normally costs a lot less than whole life. This is because it usually doesn’t last as long and doesn’t have extra features like cash value and dividends. But life insurance costs differ for everyone, because it depends on your personal info.

The chart below compares you how much a man or woman might pay in monthly premiums for a term (20 years) versus whole life insurance policy for $250,000 in coverage.

Average term and whole life insurance rates for smokers and non-smokers

Age Group Term Life – Nonsmokers Term Life – Smokers Whole Life – Nonsmokers Whole Life – Smokers
Male / Female Male / Female Male / Female Male / Female
25-34 $15 / $13 $30 / $25 $275 / $250 $350 / $300
35-44 $20 / $18 $45 / $35 $350 / $300 $475 / $400
45-54 $50 / $40 $100 / $80 $500 / $425 $700 / $575
55-64 $100 / $80 $180 / $150 $750 / $625 $1,100 / $900
65+ $200 / $150 $350 / $300 $1,200 / $1,000 $1,800 / $1,500

*Representative values based on average monthly costs of term and whole life premiums from Canada’s best life insurance companies.

Are there any alternatives to term and whole life insurance?

  • Universal life insurance: Offers lifelong coverage like whole life but with added flexibility, allowing you to adjust or skip premium payments and modify the death benefit
  • Variable life insurance: Provides lifelong coverage and a guaranteed death benefit. The cash value grows based on your chosen investments, making it riskier and costlier
  • Indexed universal life insurance (IUL): A type of universal life insurance where the cash value grows based on the performance of a specific stock index. It carries higher risks similar to variable life insurance
  • 1-year term life insurance: Designed for short-term needs, such as between jobs, offering affordable coverage while you explore long-term insurance options

Is it easier to apply for term vs whole life insurance?

In general, it’s easier to get a term policy than a whole one. This is another difference in term and whole life insurance that makes a lot of Canadians choose term instead — it tends to be affordable, simple to understand, and easy to get.

The application process for whole life policies may ask more questions or be more strict about medical questions. This is because the insurance company takes on more risk with this kind of policy, so they need to make sure it’s worth it for them.

Should I choose term or whole life insurance?

Choosing between term versus whole life insurance comes down to your personal situation and needs. We generally say:

🗓️ Term life may be best if:

  • You have temporary, short-term needs like covering mortgage payments, funding future college fees for your children, or covering other life expenses
  • You’re on a tight budget — term is the most affordable type of life insurance
  •  Your needs are simple, and you only want it to cover a few specific things if you unexpectedly pass away
  • You’re still deciding, but you want your loved ones to be covered while you make up your mind

Whole life may be best if:

  • You have permanent, long-term needs like covering end-of-life costs, funeral expenses, or leaving an inheritance to your loved ones
  • You want insurance for life coverage — whole life lets you pay early and be covered for life, so you don’t have to worry about it later on
  • You want to have the same rates all your life, instead of having to face an increase if you renew later on
  • You want built-in investments that you can use now to help you build cash growth for the future
  • You want a guaranteed death benefit that will make sure your loved ones get the money no matter what
  • Your budget isn’t so strict, and you’d rather invest in tomorrow than save today
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Life Insurance Tip

The low cost of term coverage comes with a caveat. If you want to renew your policy when your term ends, your premiums will cost a lot more. Insurance is more expensive as you age because it’s more of a risk for insurance companies.

Can I change between term and whole life?

It depends on the kind of policy you have. In general:

Term life policies

  • Most are convertible
  • You can change them into a whole life policy — or into any kind of permanent life insurance

Whole life policies

  • Are not convertible
  • You cannot change them into any other type of policy, including term life
  • In some cases, and depending on your provider, you may be able to use your cash value to buy a term life policy and cancel your existing whole life coverage

Can I get both term life and whole life insurance?

Yes, you can get both types of insurance for life coverage at the same time if you need to. You may buy both intentionally. Or, you may find that you have both through group coverage — such as buying a whole life policy for yourself and having term life coverage through your job.

But, it depends on your needs and your financial situation. You may not necessarily need both types of coverage at the same time.

Example
You may choose to buy a small whole life policy to make sure your family doesn’t have to pay your funeral costs, or to cover estate planning. And then you may buy a term life policy to cover your mortgage in the event of your untimely death during your working years.

Do I need both term and whole insurance?

Again, it depends. You do not necessarily need a term coverage if you already have whole life. But, as we saw in the example above, you might need both if you plan on using them for different purposes. It really just depends on you and your family.

Is whole life or term life insurance better?

Whichever policy meets your needs and protects your family is the better one for you. The difference in whole life and term life insurance will matter more based on what you specifically need it for. In general:

  • Term life can better for younger Canadians and families
    They are more likely to still have short-term needs that term life can cover at a low cost.

  • Whole life can be better for Canadian seniors and retirees
    It can help them plan for end-of-life costs, add to their retirement income, help with paying for long-term care, and more.

But, this is not always the case! And, waiting until later in life to buy insurance can also make your premiums more expensive. It’s best to speak with a licensed insurance advisor to find out whether a term policy or a whole life policy would be better for you.

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Frequently asked questions about term versus whole life insurance

Term life policies tend to be the cheapest type of coverage compared to permanent life insurance policies like whole life because:

  • Short length — They are temporary, and do not have lifelong coverage
  • No investments — They do not build cash value growth or pay out dividends
  • No collateral leverage — They cannot be used as a loan, to borrow against, for collateral, cashed out, etc.
  • Lower risk — There is no guaranteed death benefit because the insured person can outlive their policy, and this is less risky for the insurance company
  • High flexibility — They’re very simple and straightforward, without a lot of bells and whistles

Read more about the Cheapest Life Insurance in Canada.

In general, the most common type of insurance policy for Canadian seniors is whole life insurance. They give seniors life assurance that they can leave something behind for loved ones, and plus gives them the benefit of cash value growth.

But, there is no hard-and-fast rule that whole life insurance is better for seniors in EVERY case. The best policy for you really depends on your life and insurance needs.

Read more about the Best Life Insurance for Seniors.

Most of Canada’s biggest life insurance companies offer both term and whole life. This includes many of the ones we work with, like:

Check out our insurance reviews before you make a decision on a certain company. And be sure to compare the best life insurance quotes from each company right here on PolicyAdvisor.com.

Or schedule a call with one of our advisors who can give you expert tips and help you determine which company would be best for you.

Both term and whole life insurance are great types of life insurance coverage that can give you peace of mind in knowing that your family has future financial protection. We would not suggest you “avoid” either.

All types of policies have pros and cons. You should speak with an experience advisor for professional advice.

Need help?
Call us at 1-888-601-9980 or book time with our licensed experts.
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KEY TAKEAWAYS

  • Term life is the more affordable options, and is usually chosen by younger Canadians with temporary needs (raising minor children, covering mortgage)
  • Whole life can be expensive but provides lifelong protection, guaranteed level life insurance premiums, and a cash value 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

By Jiten Puri
CEO & Founder, Insurance Advisor, LLQP
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