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Two TYPES OF LIFE INSURANCE

10/17/23

There are two types of life insurance in Canada: Term Life Insurance and Permanent Life InsurancePermanent Life Insurance. Term life insurance is often used for needs that may span decades, but eventually no further life insurance is needed (mortgages, family needs, etc). Permanent life is intended for life insurance needs that have no end date, and the insurance is intended to be kept for life. 

What differentiates the different types of life insurance?

Unlike what you may expect, life insurance types are not differentiated by the life insurance component. $500,000 of one type of life insurance pays the same death benefit as $500,000 of a different type of life insurance. It’s not the insurance that gives us the different types of life insurance.

Instead, what differentiates life insurance is the cost of life insurance – and in particular, the cost of different types of life insurance over long periods of time. An easy to understand comparison would be purchasing a car, with three types of financing: Leasing, using a bank loan, or paying for the car outright with cash. In all three cases you have the same car, you’re just paying for it differently. And like purchasing a car, how you would pay for your life insurance varies with individual circumstances.

Term Life Insurance

Term life insurance has premiums that are age-based over time. That means premiums are initially relatively inexpensive, but go up as you grow older. 
Term life insurance has an initial period during which the premiums are level. Common types of term life insurance are 10 year term (premiums level for 10 years, then premiums increase), 20 year term (premiums level for 20 years, then increasing) and 30 year term (premiums level for 30 years then increasing). 

After the initial level period if the term policy is arenewable term life insurancepolicy, the policy remains in force but premiums increase substantially. Thus you should expect to keep a term life insurance policy only for the duration of the initial level term period with the expectation that you don’t need life insurance after that point and would thus cancel the policy. If the term life insurance policy is not renewable then your life insurance coverage expires at the end of the initial term. All term life insurance policies quoted on our website are renewable term life insurance policies. You should never purchase a term life insurance policy that isn’t renewable and convertible unless you have no other choice.

Common uses for term life insurance is for family needs, to cover mortgages, and to protect your family’s lifestyle. These types of needs assume that you need life insurance while you’re earning an income and supporting your family, but eventually you won’t need the insurance any longer (typically at retirement). Thus Canadians would generally choose a term life insurance policy that has a term with premiums level approximately until they’re retirement age. So a person in their 30’s might choose a 30 year term, while a person in their 50’s might look at a 10 year term.

Permanent life insurance

Permanent life insurance has premiums that are level for life. At the start of a permanent policy, the initial premiums are much higher than a comparable amount of term life insurance. However because premiums remain level for life, and term life insurance premiums increase over time, over the long term permanent life insurance premiums are lower than term life insurance premiums.

Permanent life insurance policies are used for insurance needs that are always there, no matter how old you are when you pass. Examples include creating an estate for your beneficiaries and final expenses – these needs never expire. If you try to cover these needs with term life insurance, eventually the term life insurance premiums will become unaffordable and you’ll be left without life insurance. Permanent insurance however maintains your premiums level for life, ensuring that it remains affordable for life.

There are three common types of permanent life insurance:

Whole Life Insurance, Universal Life Insurance, and Term to 100. Whole life and universal life insurance both intermingle some aspects of investments which can confuse your life insurance decision. If you are considering permanent life insurance, you should first choose your policy based primarily on the life insurance and the premiums and only look at investment options as a secondary decision, if at all. You should know that investment options within life insurance policies, while exceptional opportunities for some people, are generally a poor choice for most Canadian consumers.

What type should you choose?

If you are seeking life insurance to protect your family from your early death, and assume that you no longer need life insurance once you retire, your debts are repaid, you have retirement savings, and your children are financially independent, then you should look at term life insurance.

If you are looking for life insurance to cover final and funeral expenses, or to leave money behind for family as part of your estate, then you should look at permanent life insurance.

You can get a quote for term life insurance using the form at the top of this page. If you would like a quote for permanent life insurance, please contact us and we’ll provide quotes right over the phone.