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Level-Premium Whole Life Insurance: Essential Tips for Canadians 2024

The Smart Canadian's Guide to Level-Premium Whole Life Insurance
The Smart Canadian's Guide to Level-Premium Whole Life Insurance

Level-premium whole life insurance is a permanent form of life insurance coverage that provides lifetime protection along with a savings component. For Canadians looking for lifelong coverage with predictable costs, level-premium whole life can be an excellent option.

In this comprehensive guide, we’ll explain everything you need to know about level-premium whole life insurance and how it works for Canadian policyholders.

What is Level-Premium Whole Life Insurance?

What is Level-Premium Whole Life Insurance
What is Level-Premium Whole Life Insurance

Level-premium whole life insurance, also known as ordinary life insurance or Level-premium insurance, is a type of permanent life insurance distinguished by its fixed, level premium payments.

Unlike term life insurance, which only provides temporary protection, level-premium whole life offers guaranteed lifetime coverage as long as you continue to pay your premiums. It also contains a cash value account that grows on a tax-deferred basis you can access while living.

With level-premium whole life insurance, the annual premium payments remain the same or “level” for the duration of the policy. Your premium is based on your age when the policy is issued and won’t increase as you get older. However, the death benefit typically increases over time as dividends are earned.

Level-premium whole life insurance policies have three main components:

  • Guaranteed death benefit – This is the amount your beneficiaries receive if you pass away while covered. The death benefit increases over time with dividends.
  • Guaranteed cash value – A portion of your premium goes toward building cash value that earns interest. You can borrow or withdraw these funds.
  • Level premiums – Your annual premium cost stays the same throughout your lifetime.

By paying a fixed premium every year, you secure lifelong protection that often becomes more valuable over time due to rising death benefits and accessible cash value.

How Does Level-Premium Whole Life Insurance Work in Canada?

Let’s look at how level-premium whole life insurance works and the key features that distinguish it from other policy types .

Premium Payments

With ordinary or straight whole life insurance, your premiums will remain level and unchanged from the date of issue until your death . This guarantees the annual cost of your coverage will never go up.

The premium is based on your age and health status when the policy begins. Premiums are higher for the whole life than for the term life because the whole life accumulates cash value and covers you longer. But once your premium is set, it is fixed for life.

For example, a 30-year-old male in good health may pay around $250 per month for a $500,000 level-premium whole life policy. When he turns 50, 60, or 80 years old, his premium will still be $250 per month for that same policy.

Sample Monthly Premiums for $500,000 Level-Premium Whole Life Policy

AgeMaleFemale
30$250$215
40$340$310
50$510$445
60$790$690
$500,000 Level-Premium Insurance Policy

Cash Value Growth

A portion of each premium payment goes toward building cash value, which functions like a savings account inside your policy . Interest accrues on the cash value, allowing it to grow over time on a tax-deferred basis.

Policyholders can borrow against the cash value, withdraw it in a lump sum, or use it to help pay future premiums. If you withdraw only the amount equal to or below your paid premiums, the withdrawal is income-tax-free. With proper planning, the cash value can supplement retirement income.

Cash value growth is guaranteed at a minimum rate specified in the policy. But through dividends, your cash value can grow faster.

Dividends

Most Canadian whole life insurance insurers pay dividends, which represent your portion of the company’s profits. Dividends are not guaranteed but provide upside potential.

Ordinary whole life policy dividends can be taken as cash, used to purchase additional insurance called paid-up additions, or left with the insurer to earn interest. Paid-up additions increase your death benefit over time, even as premiums remain constant.

Lifelong Protection

The key advantage of level-premium whole life insurance is it provides permanent protection for your entire life, not just a set term. The death benefit and guaranteed cash value continue without expiration as long as premiums are paid.

Your beneficiaries will receive the death benefit no matter when you pass away. The policy also builds cash value you can utilize while living.

The Benefits of Level-Premium Whole Life Insurance

The Benefits of Level-Premium Whole Life Insurance. Who Is Level-Premium Whole Life Insurance Best For
life buzz quote in canada new 8 1
The Benefits of Level-Premium Whole Life Insurance. Who Is Level-Premium Whole Life Insurance Best For

Let’s examine the compelling benefits you get with a level-premium whole life policy:

Fixed, Predictable Premiums

The top benefit of a level-premium whole life is that premium payments remain fixed throughout your lifetime. You never have to worry about unpredictable or rising costs. This allows you to plan for level premiums in your household budget year after year.

Many Canadians prefer the stability and peace of mind guaranteed level premiums provide. This is in contrast to annually renewable term life insurance, where rates increase every year as you age.

Lifelong Protection

Permanent whole life insurance ensures you have coverage for your entire life, not just a set period. It’s the only way to guarantee your future insurability. With term life, you may eventually become uninsurable due to health changes.

Canadians often buy level-premium whole life for lifelong protection to cover final expenses and continue leaving an inheritance. The death benefit and guaranteed cash value last a lifetime.

Tax-Advantaged Cash Value Growth

The cash value account within whole life insurance grows on a tax-deferred basis. This allows for faster growth compared to taxable accounts. Many Canadians use this tax-free compound growth to fund retirement income or large purchases.

Policy loans from the cash value are also not taxed. This gives level-premium whole life insurance unique tax advantages.

Withdrawing or Borrowing Cash Value

The cash value within your policy is easily accessible through policy loans or withdrawals. This can help fund major purchases, start a business, pay for college, supplement retirement, or more.

Having this “self-completing” feature means you don’t have to cancel your policy or die to utilize its benefits. The cash value provides living benefits.

Dividend Potential

Dividends paid by your insurance provider allow you to increase your total death benefit over time, even while premiums remain level. This enhances the value of your coverage.

Dividends also provide flexibility in how you utilize policy rewards. Overall, dividends provide a significant upside.

Financial Benefits at Death

In addition to the income-tax-free death benefit your beneficiaries receive, level-premium whole life insurance can create other financial benefits at death:

  • Your beneficiaries may receive the death benefit in installments or as a life annuity.
  • Interest continues accruing on the death benefit until it is paid out.
  • Creditors generally cannot make claims on life insurance proceeds.

Potential Discounts

Most insurers provide discounted premiums for buying level-premium whole life insurance under select circumstances:

  • Multi-policy discounts – Buying multiple policies from the same insurer.
  • Couples discounts – When a couple purchases individual policies.
  • Group association discounts – Being part of certain groups or associations.

Always inquire about discounts to reduce your level-premium whole life insurance costs.

Who Is Level-Premium Whole Life Insurance Best For?

Level-premium whole life insurance can be an excellent choice for these types of Canadians:

Those with Lifetime Coverage Needs

If you need lifelong insurance protection, level-premium whole life provides a layer of guaranteed coverage. Those who always want insurance in place for final expenses or estate planning often prefer whole life.

Whole life also ensures your future insurability. If health issues later make you uninsurable, your whole life policy continues unchanged.

Retirement Planning

The tax-advantaged cash value growth within whole life insurance can complement retirement savings. Policy loans and withdrawals help supplement income in retirement as well. This is why whole life insurance is common in retirement planning.

Estate and Legacy Planning

Canadians use level-premium whole life insurance to increase inheritances for heirs or fund estate taxes. The income-tax-free death benefit passes to beneficiaries without probate or legal delays.

Whole life insurance also offers creditor protection for inherited assets.

Conservative Investors

The guaranteed cash value growth and fixed premiums appeal to risk-averse investors. Returns are modest but predictable. Whole life insurance offers stability compared to volatile markets.

Individuals and Families on Fixed Budgets

The stable, level premiums allow households to fit whole life insurance into their regular budget. This helps gain lifetime protection while avoiding variable out-of-pocket costs in the future.

Compare Level-Premium Whole Life Insurance to Term Life Insurance in Canada

It’s helpful to compare level-premium whole life insurance to level-premium term life insurance available in Canada:

Length of Coverage

Whole life insurance covers you for life, while term life only lasts for a set period like 10 or 20 years. Term life insurance expires without residual value while the whole life remains in force.

Premium Payments

Both types of policies offer guaranteed-level premiums. However, term life premiums are lower than whole life premiums for the same coverage amount because term lacks cash value. Whole life premiums are higher to fund the policy’s cash value component.

Cash Value

Whole life contains a cash value account that grows over time. Term life insurance does not have any cash accumulation feature.

Use of Dividends

Dividends are only available with participating whole life policies. Term life insurance does not pay dividends.

Conversion Options

Many term life policies allow you to convert to whole life insurance without proof of insurability. Conversion keeps coverage intact if health issues emerge.

Policy Flexibility

Term life offers more flexibility to change the death benefit amount or policy term length. Whole life policies have less flexibility to modify the death benefit or premiums.

Tips for Buying Level-Premium Whole Life Insurance in Canada

Tips for Buying Level-Premium Whole Life Insurance in Canada
Tips for Buying Level-Premium Whole Life Insurance in Canada

Here are some tips when purchasing level-premium whole life insurance:

  • Shop around – Compare quotes from at least 3-5 insurers to find the best rates for your situation. Premiums can vary widely.
  • Consider riders – Riders like waiver of premium or accidental death can customize protection. But they add cost.
  • Take advantage of discounts – Apply for any multi-policy, group, or couples discounts to reduce premiums.
  • Consult a broker – An independent broker has access to policies from many insurers and can save you time and money.
  • Review annually – Re-evaluate coverage needs and beneficiaries every year as circumstances change.
  • Buy enough coverage – Make sure the death benefit is sufficient to meet your goals.

The Bottom Line

Level-premium whole life insurance provides permanent protection, guaranteed cash value growth, fixed premiums, and living benefits accessible through dividends or policy loans. It’s an excellent option for Canadians who prioritize lifetime coverage and stable costs.

While whole life insurance costs more upfront than term life insurance, it can pay dividends in the long run through rising death benefits and tax-advantaged cash value. Take time to see if level-premium whole life insurance aligns with your financial objectives.

Get Expert Advice on Level-Premium Whole Life Insurance

Questions still remain about level-premium whole life insurance and whether it’s the right solution for your specific needs? The experts at Lifebuzz can help.

As Canada’s leading life insurance news source, Lifebuzz provides complimentary consultations to Canadians looking to understand whole life insurance and other policy options.

Connect with a Lifebuzz Insurance Expert

Our advisors have access to quotes, products, and insider knowledge from dozens of Canadian life insurance providers. We simplify the research process and identify your best policy in terms of coverage, cost, and service.

Don’t leave your financial future up to chance. Partner with Lifebuzz and find the optimal level-premium or other whole life insurance policy for you and your family. We’re here to provide the expertise you need, at no cost.

Frequently Asked Questions (FAQs)

How do level premiums insurance work with whole life insurance in Canada?

Level premiums insurance with whole life insurance remain the same throughout the life of the policy. Your age at purchase determines your premium, which will not increase as you get older.

How does level-premium whole life compare to term life insurance in Canada?

Whole life has lifetime coverage, cash value, and dividends unlike temporary term life insurance in Canada.

Does a level-premium whole life policy provide permanent protection?

Yes, level-premium whole life offers lifelong protection as long as premiums are paid.

Can the premium amount increase over time with a level-premium insurance policy?

No, the premiums remain level and do not increase with age under a level-premium policy.

s cash value accessible from a level-premium whole life insurance policy?

Yes, policyholders can take loans or withdrawals against the cash value if needed.

Do dividends typically get paid on participating level-premium whole life insurance policies?

Yes, participating whole life insurers will generally pay dividends on the policy.

Can you lose a level premium insurance policy if you temporarily stop paying premiums?

No, the policy will not be lost but you have options like reduced benefits or extended coverage.

Are there any discounts available for level-premium whole life insurance?

Yes, multi-policy, group, couples, and online discounts may be available to reduce level-premium costs.

Do all whole life insurance policies have level premiums?

No, some whole life policies have increasing premiums over time rather than level premiums. Level premiums insurance are the most common though.

Can you adjust the death benefit on a level premium insurance policy?

No, the death benefit amount is fixed and cannot be easily adjusted mid-policy.

Are level-premium insurance policies more expensive than term life insurance?

Yes, level-premium whole life insurance does cost more than term life insurance in most cases.

Article Sources:

Our unwavering commitment to accuracy, openness and independence in reporting makes Lifebuzz.ca Canada’s most trusted destination for impartial insurance news, as our Editorial Policy explains. We proudly maintain our standing as the nation’s premier source of objective industry insights.

Lifebuzz.ca provides this article referenced from leading reputable sources on the topic of whole life insurance, such as:

  1. Amica life insurance review 2023 – CBS News – https://www.cbsnews.com/
  2. Investing in Your Family’s Security: Exploring Life Insurance Options for a Brighter Future – Bazaar Daily – https://bazaardaily.com/
  3. Perk Benefits | Whole Life Insurance – http://perkbenefits.com/
  4. Whole Life Insurance in Portland, IN, Fort Wayne, New Haven, Bluffton – https://bixlerinsurance.com/
  5. What To Do if Your Life Insurance’s Term Is Almost Up | ORBA – https://www.orba.com/
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Written by Ben Nguyen

Ben Nguyen is an award-winning insurance expert and industry veteran with over 20 years of experience. He is the chairman and director of IDC Insurance Direct Canada Inc., one of Canada's leading online insurance brokerages.

Ben is renowned for his extensive knowledge of life, health, disability, and travel insurance products. He is the prolific author of over 1,000 educational articles published on LifeBuzz, BestInsuranceOnline, and InsuranceDirectCanada. His articles provide Canadians with advice on making smart insurance decisions.

With a Bachelor's degree in Actuarial Science and a Fellow of the Canadian Institute of Actuaries (FCIA) designation, Ben is frequently interviewed by media as an insurance industry spokesperson.

He has received numerous honors including the Insurance Council of Canada’s Pivotal Leadership Award, the Canadian Insurance Hall of Fame induction, and the President’s Medal from the Canadian Institute of Actuaries.

Ben continues to shape the vision and strategy of IDC Insurance Direct as chairman. He is dedicated to advancing the insurance industry through his insightful leadership.

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