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- Term life insurance is the more affordable option, often chosen by younger Canadians with temporary financial obligations, such as covering a mortgage
- Whole life insurance, while more expensive, offers lifelong protection, level premiums, and a cash value component you can access during your lifetime
- You can speak to a PolicyAdvisor agent to determine whether term or whole life insurance is the best fit for you and your family
- What's the difference between term versus whole life insurance?
- What is term life insurance?
- What is whole life insurance?
- Whole vs term life insurance: Cost comparison
- Which is better, term or whole life insurance?
- Is a term life insurance application easier than whole life insurance?
- Can you have both term and whole life insurance?
- Do I need both term and whole life insurance?
- Should I switch my term life insurance to whole life insurance?
- Are there any alternatives to whole and term life insurance?
- Frequently asked questions
Life insurance is more than just a protective tool—it’s a crucial part of securing your family’s future. However, understanding the differences between term and whole life insurance is essential to making the right choice.
Each serves a unique purpose, offering varying levels of protection and flexibility. In this article, we break down both types to help you choose the policy that best suits your needs.
What’s the difference between term and whole life insurance?
The key difference between term and whole life insurance lies in their duration, cost, and benefits.
Term life insurance covers a specific period, such as 10, 20, or 30 years. If the policyholder passes away during this term, a death benefit is paid to beneficiaries, but there is no payout if the term ends while the policyholder is still alive. This makes term insurance ideal for temporary needs like paying off a mortgage or funding education.
Whole life insurance, by contrast, offers lifelong coverage and includes a cash value that grows over time, which can be accessed during the policyholder’s life. Its higher premiums reflect the added savings element and guaranteed protection, making it suitable for long-term goals like estate planning and legacy building.
Term vs 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 |
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What is term life insurance?
Term life insurance is a type of life insurance policy that provides coverage for a specific period, or “term,” such as 10, 20, or 30 years. If the policyholder passes away during this term, their beneficiaries receive a tax-free death benefit. However, if the policyholder outlives the term, the coverage ends, and no payout is made.
Term life insurance is ideal for meeting temporary financial needs, such as paying off a mortgage, funding children’s education, or replacing income in the event of premature death.
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 |
What is whole life insurance?
Whole life insurance is a type of life insurance that provides coverage for the policyholder’s entire life, as long as premiums are paid. In addition to offering a guaranteed death benefit, it also includes a cash value component that grows over time at a guaranteed rate. This cash value can be accessed through loans or withdrawals during the policyholder’s lifetime.
Whole life policies typically have higher premiums compared to term life insurance because of their lifelong coverage and savings feature. Such policies are well-suited for long-term financial planning, such as estate planning, wealth transfer, or covering final expenses, and may also pay dividends, which can further increase the cash value or death benefit.
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 |
Whole vs term life insurance: Cost comparison
The cost of term life insurance is significantly lower than whole life insurance because it provides coverage for a limited period and doesn’t build cash value.
For non-smokers aged 25-34, term life premiums can be as low as $13-$15 per month, while whole life premiums for the same age group range from $250-$275. Smokers pay higher premiums across the board, with term life costing $30-$35 for ages 25-34 and whole life costing $300-$350.
As age increases, premiums for both types rise, but whole life consistently remains more expensive due to its lifelong coverage and cash value component.
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.
How do term and whole life insurance premiums change over time?
Term life insurance premiums start low but increase after the initial term ends, as the policy renews at higher rates. In contrast, whole life insurance premiums stay the same for life, ensuring policyholders pay a fixed amount regardless of age.
Which is better, permanent or term life insurance?
The choice between permanent and term life insurance depends on your needs. Term life insurance is affordable and provides coverage for a set period, ideal for temporary needs like mortgage payments or raising children.
Permanent life insurance offers lifelong coverage and builds cash value, making it better for estate planning or long-term financial goals. If cost is a concern, term insurance works well. But, for lasting benefits and asset growth, permanent insurance is the better choice.
| Policy Type | Best for |
| Term life insurance |
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| Whole life insurance |
|
Is a term life insurance application easier than whole life insurance?
In general, it’s easier to get a term policy than a whole one. Most insurers offer simplified issue term life plans that require no medical screening, or accelerated underwriting, which waives the need for a medical exam for low-risk applicants. These factors make term life insurance more accessible.
Whole life insurance, on the other hand, typically involves a more rigorous application process, often requiring medical exams. 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.
Can you have both term and whole life insurance?
Yes, you can have both term and whole life insurance in Canada. This approach, often called “combination coverage” or “layering,” allows you to meet different financial needs at various life stages.
Term life insurance provides affordable coverage for temporary needs like paying off a mortgage, funding education, or income replacement during your working years. Whole life insurance, on the other hand, offers lifelong protection and builds cash value, which can be used for estate planning, retirement, or covering final expenses.
Term insurance handles immediate, time-limited obligations, while whole life insurance ensures permanent coverage and a savings component. By combining both policies, you can balance affordability with long-term financial security.
Do I need both term and whole life insurance?
Whether you need both term and whole life insurance depends on your financial situation and long-term goals. Combining both can provide comprehensive protection that addresses different needs.
Term life insurance is ideal for covering short-term financial obligations such as mortgages, children’s education, or replacing income during your peak earning years.
Whole life insurance, on the other hand, offers lifelong protection while supporting your estate planning needs. It also builds cash value, which you can borrow against in the future.
In summary, having both types of insurance can help you meet your short-term financial needs while ensuring lifelong protection and peace of mind for you and your loved ones.
Life Insurance Tip
Should I switch my term life insurance to whole life insurance?
Switching from term life insurance to whole life insurance depends on your financial goals and evolving needs. Term life insurance is ideal for covering temporary obligations, while whole life insurance provides lifelong coverage and builds cash value.
You might consider switching if your financial priorities have shifted to include estate planning, wealth transfer, or retirement savings. However, whole life premiums are significantly higher, so it’s important to assess whether the added benefits align with your budget and goals.
If you need both affordability and permanent coverage, you may also explore a combination of both policies instead of a full switch. Consulting our licensed advisors can help you decide if this move fits your overall strategy.
Are there any alternatives to term life insurance and whole life insurance?
Yes, there are several alternatives to term life and whole life insurance including universal life, variable life, indexed universal life, and 1-year term 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
You may also want to look into critical illness and disability insurance, which provide financial support in the event of serious illness or disability. Together with life insurance, they create a well-rounded safety net against various uncertainties.
Which is better to have, whole life or term life insurance?
Choosing between whole life insurance and term life insurance depends on your needs. Term life insurance is ideal for affordable, temporary coverage to protect your family or cover financial obligations like a mortgage. It offers a death benefit but doesn’t build cash value.
Whole life insurance, on the other hand, provides lifelong coverage, a guaranteed death benefit, and builds cash value over time, making it ideal for long-term financial planning and estate protection.
If you’re looking for the best term or whole life insurance policy, speak to a PolicyAdvisor expert to compare and find the best plan for your needs and budget. With PolicyAdvisor, you’ll receive free instant quotes, the lowest rates in the market, and lifetime after-sales support. Schedule a free consultation today!
Frequently asked questions
Why is term life cheaper than whole life?
Term life insurance policies are generally the most affordable type of coverage when compared to permanent life insurance options like whole life. This is because term policies offer temporary coverage for a set period, without the lifelong protection provided by whole life. They also lack investment components, meaning they don’t build cash value or pay out dividends.
Is whole life versus term life insurance better for seniors?
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 give 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.
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, Beneva, Canada Life, Empire Life, Equitable Life, Sun Life, etc.
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.
What age to get whole life insurance?
The best age to get term or whole life insurance depends on individual financial goals, but generally, it is ideal to purchase life insurance in your 20s or 30s. The younger you are when you purchase a term or whole life policy, the lower your premiums will be. Premiums are typically based on your age and health, so securing a policy in your 20s or 30s ensures you lock in more affordable rates.
Can I cancel a whole life or term life policy early?
Yes, you can cancel both whole life and term life policies early. Here’s how it works for each type:
Whole life policies
- Terminate the policy: You can cancel your whole life policy by contacting your insurer. Upon cancellation, you’ll receive the cash surrender value, which is the policy’s cash value minus any applicable charges
- Cancel during the review period: There is often a review period (typically 10 days) effective from the date of the policy’s receipt. If you cancel within this window, you’ll receive the net cash value plus any accrued dividends
- Reduced paid-up option: Instead of canceling, you may convert your plan to a reduced paid-up policy, which provides a lower amount of coverage without requiring further premium payments
Term life policies
- Terminate the policy: You can cancel your term life coverage by contacting your insurance provider. Some insurers may require you to submit a written confirmation
- Cancel during the “free look” period: Most insurers offer a free look period of 10 to 30 days after purchasing a policy. During this time, you can cancel and receive a full refund of any paid premiums
- Automatic termination: If you miss a premium payment and don’t pay within the grace period (typically 30 days), your policy will lapse automatically
How does cash value work in whole life insurance?
In whole life insurance policies, cash value is a savings component that accumulates over time. Each time you pay your premium, a portion is allocated to the cash value, which grows at a guaranteed rate set by the insurer. Over time, it may increase further through earned interest and any dividends paid by the insurer.
The timing of when the cash value becomes accessible depends on the policy type and insurer. Once available, it can be withdrawn, borrowed against, or used as collateral for a loan.
You can learn more about how cash value works here.
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 during your lifetime.
