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Term vs Whole Life Insurance: All You Need to Know

Mar 3, 2023 | Insurance, Life Insurance

When buying life insurance, it’s important to understand the options available to you. Knowing all the details about the policy, how much it costs, and the terms of coverage will help you determine whether it’s a good fit for your needs.

Most Canadians will have to choose between term and whole life insurance. Both insurance products will protect your beneficiaries when you die, but they have different guiding principles.

This article on term vs whole life insurance will cover all the details you need to know.

What Is Term Life Insurance?

Term life insurance is a policy that provides coverage for a fixed period of time (usually 10 to 30 years or until you reach 65 years). Your beneficiaries will receive the death benefit if you die while the policy is in effect. Term life insurance policies are the simplest and cheapest types of life insurance overall.

The life insurance policy will only remain active for as long as you pay the premium. Once you miss premium payments, you’ll lose the policy’s coverage.

When you choose term policies, your policy’s death benefit will remain unchanged for the coverage duration. The premiums will also remain the same.

You can renew your term life policy as you near the expiry without undergoing medical exams. However, the premiums will increase with every renewal because insurance costs more as you age. Some policies may also allow you to convert the term life policy to a whole life option (if you included a conversion rider) originally.

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Pros and Cons of Term Life Insurance

As with any product, there are positive and negative attributes to consider. Considering pros and cons for term life insurance, is of course dependent on your individual needs. Let’s take a look:


  • Straightforward policy choice. A term life policy is a simple contract that’s easy to understand. Your insurance provider promises to pay your family a specific amount if you pass away within an agreed period in exchange for premium payments.
  • Highly affordable. The premium on term life policies can be five to 15 times cheaper than similar whole life insurance policies.
  • Easy cancellation. Term life policies are flexible. You can cancel them at any point without paying cancellation fees.
  • Possibility of conversion. Some term life insurance policies allow the switch to permanent coverage.


  • Limited coverage timeline. As the name implies, most term life insurance policies have an expiry date.
  • No cash value component. A term life policy doesn’t have any cash value. Therefore, you can’t withdraw money or take out a loan against the policy.
  • Premiums increase upon renewal. Extending the policy upon expiry will require accepting a rise in the premium.

What Is Whole Life Insurance?

Whole life insurance or permanent insurance doesn’t have an end date. The policy will remain active for your entire life as long as you keep up with premium payments. Your beneficiaries will receive the payout whenever you die.

The major difference between whole life insurance and term life is that the policy features a cash value component. The insurance provider uses a part of the premiums to cover the cost of insuring you and invests the remainder into a tax-deferred savings account.

As the cash value component of your permanent policy grows, you can withdraw money from it. You may choose to surrender the policy and take the cash value after it’s built enough cash value. The death benefit and the cost of the premiums will remain the same throughout the policy.

Pros and Cons of Whole Life Insurance

Same with term life insurance, whole life has its own set of pros and cons. Let’s go over them:


  • Permanent coverage. Whole life insurance policies guarantee lifelong coverage as long as you continue to pay the premiums.
  • Cash value component. Whole life insurance policies feature a cash value account and a savings account. Thus, you can withdraw or borrow money from the policy.
  • Potential to earn dividends. You can earn annual dividends with whole life insurance policies. You can reinvest accrued dividends into the policy, use them to pay future premiums, or take them out as cash. On this point, understanding how life insurance works as an investment vehicle can be a huge benefit.


  • More expensive. Premiums on whole life insurance policies cost up to ten times the price of comparable life insurance products.
  • Increased complexity. A whole life policy is more complex than simpler term life options because it combines life insurance and investment.
  • No control over the cash value growth. The insurance provider retains total control over the growth of the policy’s cash value component.
  • Lower rate of return. As an investment, whole-life policies will deliver lower returns than other investment options like TFSAs and RRSPs.
  • Higher management and cancellation fees. The fees on whole policies can exceed 3% of the policy value. Similarly, canceling the policy is expensive.

Term vs Whole Life Insurance: When Should You Choose Term Life Insurance?

Term life insurance is the right choice if you have specific needs you need to take care of, even in death, such as paying off your mortgage debt or covering the cost of your children’s education.

It’s also a good option if you are on a budget but still want a life insurance product. The temporary nature of the products makes them less expensive overall.

You can also choose term life insurance if you’re still undecided about a policy but want some degree of coverage for your beneficiaries.

Thus, term policies are a good fit if:

  • You want a simple, no-frills policy
  • You want a policy to provide coverage over the short term (pending the maturity of other investments)
  • You are on a budget
  • You don’t want to get tied down to a permanent policy

Term vs Whole Life Insurance: When Should You Choose Whole Life Insurance?

Whole life insurance is the right choice if you want some financial protection for the rest of your life but also love the idea of the investment component on the policy. However, it’s only an option if you don’t mind paying the higher premiums.

Some people choose whole life insurance for the tax advantage and the guaranteed rate of return on the cash value. The insurance providers invest a part of the policy and grow it over time at a steady rate. If you are a passive investor that has maxed out other tax-free savings options, whole life insurance is a good choice.

A life insurance policy’s death benefit can also solve needs such as mortgage payments or taking care of dependents. However, you can withdraw money from the policy as the cash value grows to offset large bills.

So, whole life insurance is a good choice if:

  • You want to leave a large sum to a beneficiary or group
  • You want tax-free growth on your passive investment
  • You don’t mind paying higher premiums
  • You want a policy with a cash value you can access to complement your retirement (or other) savings
  • You want a life insurance policy that can also double as an emergency pot
  • You want the life insurance coverage to take care of expenses like estate taxes or funeral expenses

Which Providers Offer Term and Whole Life Insurance in Canada?

Most insurance providers in Canada offer term and whole life insurance. Some of the more popular providers include:

  • Assumption Life
  • Manulife
  • Green Shield Canada
  • iA Financial Group
  • GMS

How Can I Get Lower Rates on Term or Whole Life Insurance?

The best way to get lower rates on your insurance policy is to buy one in your 20s, 30s and 40s. As you get older, the policies become costlier.

You can also get lower rates on your insurance policy by shopping around. Working with an insurance broker is by far the best way to save a significant amount of time when researching what type of life insurance is the best possible option for you. A broker isn’t bound to a specific company or product. Rather, they have a vast knowledge of the entire life insurance space and are familiar with all types of life insurance, from multiple providers.

When choosing the insurance policy, you should look beyond the monthly insurance premiums. Read the fine print carefully and seek clarification on any confusing parts before signing the dotted lines.

Can I Buy Both Term and Whole Life Insurance?

You can buy both term and whole life insurance policies. However, it’s not the best way to utilize your monthly premiums. Instead of buying two separate policies, it’s best to choose a term life insurance policy and include a rider (insurance add-on) that allows you to switch to a whole life policy at any point.

Related Article

Now let’s take a look at how term life insurance compares to a permanent policy.

Find the Right Insurance Policy for Your Needs

Term life insurance provides enough coverage for most families. However, there are situations where whole life insurance will be the better choice.  

 Are you still unsure of whether to lean one way or the other? Do you want to compare other insurance options to these two products? Turn to the experienced advisors at Alliance Income Services Corp. (AIS).

Our advisors will work with you to choose the right insurance policy for your situation. We’ll carefully go over the pros and cons of each option with you and guide you toward the most cost-effective policy for your needs.

We can also secure highly competitive quotes on any type of life insurance product you choose. Fill out our quote form to get started. We look forward to working with you.


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