Generally no. Premiums are set when you buy and generally stay the same as you age. Your contract shows the amount and how long it is payable.
Whole Life Insurance
Whole Life Insurance in Canada, Explained
Permanent coverage with premiums that generally stay level and a cash value that builds over time. Here is how it works, who it fits and who it does not.
How It Works
How does whole life insurance work?
Whole life insurance covers you for your entire life, as long as the policy stays in force. Premiums generally stay the same as you age, and the policy builds a cash value.
When you die, your beneficiaries receive the death benefit, which is generally tax-free. The insurer manages the investments behind the policy, so you don't choose funds.
The trade-off is cost and commitment. Premiums start higher than term life insurance, and the policy works as designed only if you keep it for many years.
At a glance
- Lifetime coverageNo expiry date while the policy is in force
- Level premiumsGenerally stay the same as you age
- Cash valueBuilds over time, slowly at first
- Policy loansMay be available against the cash value
Two Types
What is the difference between participating and non-participating whole life?
Participating policies can pay dividends, which are not guaranteed. Non-participating policies pay no dividends, so the values are the ones set out in the contract.
| Participating | Non-participating | |
|---|---|---|
| Dividends | May be paid, not guaranteed | None |
| Growth comes from | Guaranteed values plus any dividends | Guaranteed values in the contract |
| Premium | Usually higher | Usually lower than participating |
| Predictability | Results above the guarantees can change | Fixed from the start |
Premiums on participating policies go into a pooled account that the insurer invests. Investment returns, expenses, claims, policy lapses and taxes all affect dividends. The dividend scale is not a rate of return on your policy, but once a dividend is paid, you keep it. You can usually use dividends to buy more coverage, reduce premiums, take cash or leave them on deposit. Cash and interest may be taxable.
Cash Value
How does cash value work?
Cash value is a savings component you can reach by cancelling the policy or borrowing against it. It grows slowly at first, so in the early years it is usually less than you have paid in.
You may be able to take a policy loan. An unpaid loan reduces the death benefit and the cash you would get back. Cancelling ends your coverage.
Growth inside an exempt policy is generally not taxed each year. Cancelling a policy or taking a policy loan can create a taxable gain, so have your accountant confirm the treatment first.
Before you rely on it
- Illustrations are not promisesValues above the guarantees depend on future dividends
- Stopping premiums isn't automaticSome participating policies may later pay their own premiums, but a lower dividend scale can delay or reverse that
- Missed premiums have a costAn automatic premium loan may cover them, which creates a debt on the policy
How It Compares
How does whole life compare with universal life and term?
All three pay a death benefit. They differ in how long they last, how premiums behave and who carries the investment risk.
| Term | Whole life | Universal life | |
|---|---|---|---|
| How long it lasts | A set period or age | Your whole life | Your whole life, if the policy can cover its charges |
| Premiums | Level for the term, then rise at renewal | Required and generally level | Flexible within limits. Lower returns could mean paying more |
| Cash value | None | Builds, with a portion usually guaranteed | Depends on your deposits and investment returns |
| Investment risk | None | The insurer, on guaranteed values | You |
| Main trade-off | Ends, or gets costly at renewal | Higher cost, less flexibility | More to manage, and it can lapse if underfunded |
| Usually suits | Needs that end | Lifetime needs, hands-off | Lifetime needs, hands-on |
Is It Right for You?
Who whole life insurance fits
Whole life suits a need that will still be there at any age, paid from cash flow you can count on for decades. Start with how much coverage you need.
- A lifetime needFinal expenses, a gift to family or charity, or tax on an RRIF, cottage or shares
- A dependant with lifelong needsCoverage that doesn't expire
- Steady cash flowYou can carry the premium for many years
- Business owners with surplusSee corporate-owned life insurance. Your accountant leads the tax side, and we complement them
Who it may not fit
- Needs that endTerm generally costs less for a mortgage or the years children depend on you
- A tight budgetIf it means buying less coverage than your family needs, term may fit better for now
- You may need the money soonEarly cash values are low
- You want to choose investmentsUniversal life may suit you better
Common Questions
Questions about whole life insurance
No. Participating dividends are not guaranteed and can change from year to year. The guaranteed values in your contract are not affected, but anything built on future dividends can be.
Yes, by cancelling it, but your coverage ends, early cash values are usually less than you paid, and a taxable gain is possible. Have your accountant review it first.
Required premiums must be paid, or the policy can use its value or lapse, depending on its terms. Some participating policies may later reach a point where dividends can cover the premium, but this is not automatic and can change.
Often, yes. Many term policies can be converted without proof of good health before a deadline in the contract. See how term conversion works.
It can, where there is long-term surplus and a real need for coverage. Who owns, pays for and receives the policy all affect the tax treatment, so your accountant reviews the structure first.
We work with clients across Burlington, Oakville, Milton, Mississauga and Hamilton. Many first conversations start with a call to 289.339.8100.
Related Guides
Strategies that often work together
Term Life Insurance
How 10, 20 and 30 year terms work, plus renewal and conversion.
Read the guideCorporate-Owned Life Insurance
Permanent coverage owned by the corporation, with tax-sheltered growth and CDA planning.
Read the guideLife Insurance Over 60
What is available after 60, and the trade-offs of each option.
Read the guideThis information is general in nature and is not tax, legal, accounting, insurance or investment advice. It is based on current Canadian tax legislation, which can change. Any strategy should be designed and reviewed with your accountant and legal advisors based on your circumstances. Dividends are not guaranteed. Policy values above the contract guarantees can change, and terms vary by insurer and policy; the policy contract governs.
Whole life insurance in Burlington, Oakville, Milton, Mississauga and Hamilton
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