5 Types of Life Insurance Canada Has To Offer - PolicyAdvisor

What are the 5 types of life insurance Canada offers?


There are 5 different types of life insurance plans in Canada: term life insurance, whole life insurance, universal life insurance, limited pay whole life insurance, and term-to-100 insurance. There is no one type out of the 5 that is best for anyone, and each has their benefits and drawbacks. Your life insurance needs are determined by a variety of factors such as the age and number of your dependents, household income, marital status, debt profile, and mortgage loan and amortization schedule.

By Jiten Puri
CEO & Founder, Insurance Advisor, LLQP
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 insurance than that. If you need life insurance, how do you tell them apart?

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 life insurance policies available when planning your financial security.

We’ve listed the 5 different types of life insurance plans 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 specific length of time, called a term, and pays a tax-free, lump sum payment to your beneficiaries if you die, within the term.

There are different life insurance term lengths available. 10 or 20 years are the most popular choices, but 25 or 30 years or coverage up to age 65 are also possible.

Some life insurance companies in Canada (such as RBC life insurance or Industrial Alliance Life Insurance) 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 life insurance death benefit is able to cover most of your life insurance needs that are temporary in length. This could include your outstanding mortgage, coverage for your children’s education, or living expenses for your loved ones. Because of the shorter life insurance term, a life insurance company will generally provide more affordable rates for term life insurance.

When you buy life insurance in term form, you choose your coverage amount and coverage term. Your insurance company determines your premiums based on that 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 life insurance policy, although at a higher cost. Alternatively, you can let your term life insurance coverage expire.

Some policies also let you convert this temporary life insurance into lifelong or permanent life insurance, prior to reaching a specified age. Term insurance is a cost-effective way and flexible to protect your family.

What is whole life insurance?

Whole life insurance (also known as permanent life insurance) covers you for life and there is an investment or cash value component associated with your policy and its lump sum, tax free payment. As you pay into your permanent insurance policy over time, it builds investment value.

You can cash out the value of your permanent 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. Or, you can simply leave the life insurance benefit to your loved ones as the beneficiaries, the same as any other type of life insurance.

Permanent life insurance plans usually have a higher premium, since you are covered for your entire life.

What is limited pay whole life insurance?

Limited pay whole life insurance is similar to whole life and is a form of permanent insurance. In this case, the life insurance company specifies a shortened payment term, 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 plans 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 plans are a whole life insurance 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 are no longer required to pay premiums and 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 questions Term Life Term-To-100 Whole Life
Universal Life

Is it a form of temporary coverage?
Yes, initial term is fixed No No No
Is it a form of permanent coverage? No Yes, lifelong coverage Yes, lifelong coverage Yes, lifelong coverage
Conversion to permanent product possible? Yes Not required as already a permanent product Not required as already a permanent product Not required as already a permanent product
Does it provide a death benefit? Yes Yes Yes Yes
Does the death benefit change with time? No No, benefit is fixed for life Yes, death benefit can increase with dividends received Yes, death benefit can increase or may even reduce (if the mortality cost increases or the account value reduces)
Policy cost? Initial cost is low High High High
Does it provide level (flat) premiums? Yes, premiums are flat for initial term only; increase significantly thereafter Yes, premiums are fixed for life Yes, premiums are fixed No fixed premium amount
Does it allow premium adjustments? No No No Yes, premium payments can be flexible
Are modal factors applied to premium payment? Yes – modal factor applied; annual premiums get a discount Yes, modal factor applied; annual premiums get a discount Yes -modal factor applied to non-annual premium payment; annual premiums get a discount No
Any flexibility in making premium payments? No Generally, no Yes – limited pay terms are available. Yes – you can choose the frequency of payment periods
Does it pay interest or dividends? No No Yes, dividends only Yes, interest payments only
Does it have a cash component? No No cash component Yes Yes
Can you borrow against or withdraw from policy? No No Yes Yes
Do you get control over investments? No investment component No investment component No, investments directed by the insurer Yes, you choose from a range of investment options provided by the insurer
Can the policy lapse? Yes, 30 days after premium due date Yes, 30 days after premium due date No, as long as cash values can continue to cover premium No, 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 plan 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 to protect your family and loved ones. You can start researching term life insurance policies that best fit your lifestyle, financial plans, and budget. Some insurance policies are available without a medical exam.

Once you figure out your coverage needs, you can start comparing life insurance quotes online and choose your preferred life insurance company and life insurance plan.

Read more: How our life insurance needs calculator works.

How do I get life insurance?

You can get life insurance by clicking on any of our tools mentioned above or booking some time with our life insurance experts.

They can help you determine how much life insurance you need (if any!) to protect your family or other financial interests. Reach out and get a quote!

Need help?
Call us at 1-888-601-9980 or book time with our licensed experts.
By Jiten Puri
CEO & Founder, Insurance Advisor, LLQP
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