Permanent Life Insurance in Canada: Everything You Need to Know in 2025

Permanent life insurance in Canada provides lifelong protection and tax-advantaged savings opportunities for Canadians. But it comes at a high cost and can be complex.

This comprehensive guide examines everything life insurance advisors need about permanent life insurance to help clients make informed choices.

What is permanent life insurance in Canada ?

Permanent life insurance provides lifelong protection that never expires, unlike term life insurance. Most permanent policies also contain a cash value savings component that grows on a tax-deferred basis. The two main types of permanent life insurance are whole life insurance and universal life insurance .

Overview of Permanent Life Insurance

Permanent life insurance refers to policies that remain in effect for the insured’s entire lifetime as long as premiums continue being paid.

The key defining features of permanent life insurance are:

• Lifelong coverage – Unlike term insurance, permanent policies don’t expire after a set period. The insured is covered until they pass away, regardless of age or health changes.
• Cash value savings – Most permanent policies have an investment component that makes cash value accessible while alive. This provides a source of funds to borrow against or withdraw.
• Higher premiums – In exchange for lifelong coverage and cash value, permanent insurance commands much higher premiums than term life insurance. This makes the policies prohibitively expensive for some clients.
• Tax benefits – The death benefit is income tax-free for beneficiaries. Cash value also grows tax-deferred as long as it stays in the policy.

Permanent insurance aligns well with certain financial situations like providing lifelong income for dependents, funding trusts, and leaving an inheritance. However, term life insurance is generally more suitable for temporary needs like debt repayment.

Learn more details about What is Life Insurance ?

Do I Need Permanent Life Insurance?

Determining if permanent life insurance suits your situation depends on your financial goals and needs. Here are some of the main reasons Canadians may want to consider permanent life insurance strongly:

You Have Lifelong Financial Dependents

If you have a spouse, children, couple or other family members who will rely on your income for their entire lives, permanent insurance ensures they remain protected no matter how long you live.

This includes special needs dependents requiring specialized care throughout their lifetimes.

You Want to Leave an Inheritance

Permanent life insurance allows you to ensure your loved ones receive a legacy. The tax-free death benefit can provide inheritance funds for your children or your parents.

You Need to Fund Estate Taxes or Settlement Costs

Permanent insurance can fund estate preservation trusts designed to minimize taxes so more assets are transferred to your heirs.

The death benefit can also provide liquidity to pay taxes and settlement costs for valuable illiquid assets.

You Want Tax-Advantaged Retirement Savings

The cash value savings component of permanent life insurance grows on a tax-deferred basis. This can supplement registered retirement accounts like RRSPs and TFSAs as an additional conservative income stream in retirement.

You Want to Make a Charitable Donation

Donating a permanent life insurance policy and naming a charity as the beneficiary leaves a legacy gift. Premium payments are also tax deductible.

Do you Want to Cover the Final Expenses?

A small permanent life insurance policy with a death benefit of $25,000 or less can ensure your funeral costs, outstanding debts, and probate fees are all covered, preventing a burden on loved ones.

Consult an unbiased insurance advisor to assess your specific situation. But in general, permanent life insurance aligns well with lifelong protection needs, leaving an inheritance, funding estate planning, making charitable donations, and covering final costs.

Types of Permanent Life Insurance in Canada

While permanent policies have vital similarities, some variations exist in how they are structured. Awareness of these differences allows advisors to match clients with the optimal policy.

Whole Life Insurance

Whole life insurance features guaranteed fixed premiums, cash value growth rates, and death benefits for the policy’s life. This makes it the most predictable form of permanent insurance.

Whole life is also the most expensive permanent life policy type. However, policyholders may earn annual dividends from participating mutual insurers that provide premium reductions.

According to life insurance agent quotes from top Canadian insurers, sample whole-life policy premiums are:

Over time, the guaranteed cash value growth and dividends lead some clients to utilize whole life insurance as a supplemental retirement savings vehicle.

This strategy requires careful analysis of projected retirement income needs, registered account contributions, and the opportunity cost trade-offs involved.

Universal Life Insurance

Universal life insurance (UL) offers more flexibility than whole life. Subject to certain limits, clients can adjust their premium payments and death benefit face amounts in response to changing financial needs and circumstances.

Sample universal life premiums from leading Canadian insurers are:

There are several types of universal life insurance policies:

• Guaranteed – Minimum guaranteed interest rate on cash value
• Indexed – Cash value growth tied to a market index
• Variable – Cash value invested in accounts the client manages

Universal life’s adjustability introduces some uncertainty. Policy costs may rise substantially over time as the insured ages. Advisors must ensure clients monitor funding levels closely to prevent unintended lapses.

Variable Life Insurance

Variable life insurance offers clients the most cash-value investment flexibility. The cash value gets invested in mutual fund subaccounts clients choose and manage.

The potential returns are higher with variable life, but so is the risk. If investments underperform, clients may need to increase premiums to keep the guaranteed death benefit intact.

Advisors can provide value by helping variable life policyholders optimize their subaccount asset allocation strategies. Ongoing rebalancing and risk management are essential.

Comparing Permanent Life Insurance Options

Pros and Cons of permanent life insurance in Canada

Discussing the trade-offs helps clients make informed, permanent insurance decisions aligned with their financial priorities.

Advantages of Permanent Life Insurance

• Lifelong protection – Retains coverage by paying premiums until death.
• Cash value savings – Tax-advantaged internal money clients control.
• Stable costs (whole life) – Premiums, cash value, and death benefit stay fixed.
• Adjustability (universal life) – Modify coverage and premiums.
• Investment upside (variable life) – Earn higher returns.

Disadvantages of Permanent Life Insurance

• High premium costs – Can be 5-15X more than term insurance.
• Opportunity cost – Cash value growth lags aggressive investments.
• Complexity – More intricate structure than simple term insurance.
• Lapse risk – Insufficient premiums can terminate the policy.
• Lower death benefit – Loans and withdrawals reduce the payout.

Permanent insurance pros and cons vary for each client depending on their financial profile, goals, and priorities.

How does permanent life insurance work in canada

Permanent life insurance provides Canadian policyholders lifelong coverage and a tax-advantaged cash value savings component. Here’s an overview of how it works:

• You pay ongoing monthly or annual premiums to maintain permanent life insurance coverage until you pass away.
• A portion of each premium payment goes toward covering insurance and policy expenses. The remainder gets credited to the policy’s cash value account.
• The cash value earns interest at a rate the insurance company sets—interest compounds on a tax-deferred basis as long as you keep the money inside the policy.
• The cash value portion functions as a savings account you can access while alive through withdrawals or policy loans. This gives permanent insurance an added financial benefit compared to term insurance.
• Taking out a loan or withdrawing will reduce the death benefit amount paid to your beneficiaries. But it allows you access to the policy’s accumulated cash value.
• Permanent insurance death benefits are tax-free to beneficiaries upon the insured’s death as long as premiums are kept current.
• To maintain coverage, you must continue to pay premiums as required or risk the policy’s lapse. However, the policy and coverage remain in force for life if premiums are paid.

Permanent policies thus combine lifelong insurance protection with a tax-advantaged cash value savings component requiring ongoing funding. This distinguishes them from term insurance.

Pricing Considerations for Permanent Life Insurance in Canada

Life insurance advisors ensure clients understand the pricing models and factors determining permanent insurance premiums.

Cost of Insurance

Most of the premium pays for pure insurance protection, covering mortality risk and the insurer’s costs. This portion rises each year as the insured ages.

Policy Expenses

This includes sales, underwriting, administrative, and operating expenses. Some insurers charge a flat monthly dollar amount.

Cash Value

The remaining premium is credited to the policy’s cash value after deductions for the above costs. Some insurers guarantee a minimum rate.

Key Factors Determining Premiums

• Age – Mortality risk rises with age, increasing the cost of insurance.
• Health – Poor health means higher mortality risk and premiums.
• Gender – Women often have lower premiums due to longer lifespans.
• Smoking – There are much higher premiums for smokers due to increased mortality.
• Family history – Health conditions leading to early death can raise rates.
• High-risk hobbies/occupations – Dangerous activities and jobs boost premiums.
• Face amount – Higher death benefits mean more significant premiums are required.
• Policy type – Whole life costs more than universal or variable life.
• Insurer – Competitor pricing varies, so advisors should provide quotes from multiple top-rated insurers.

Alternatives to Permanent Life Insurance for Canadians

While permanent policies serve critical lifelong protection and savings goals, advisors should discuss lower-cost insurance solutions and alternative savings vehicles that may better fit specific clients’ budgets and objectives.

Term Life Insurance

Term life insurance provides temporary protection, covering needs for 10, 15, 20 or 30 years at much lower premium costs. It can sufficiently cover temporary debt, income replacement, and family protection goals.

Many term life policies allow cost-effective conversion to permanent insurance later if needs evolve. This preserves insurability as clients age.

Tactical Self-Insurance Strategies

Some Canadians may opt to proactively self-insure more minor needs like final funeral expenses via strategic retirement savings rather than purchasing a permanent insurance policy.

What questions should you ask before buying permanent life insurance?

• What are the premium payment options and flexibility?
• How does the cash value account work and what is the growth rate?
• What fees or charges are involved?
• What riders and add-ons are available?
• How financially stable is the insurance company?
• Will I need ongoing financial advising during the life of the policy?

What are the premium payment options and flexibility?

• Most Canadian insurers allow monthly, quarterly, semi-annual or annual premiums. Annual payments cost less.
• Lump sums are allowed but can cause tax issues if 7-pay premium limits are exceeded.
• Whole life premiums are fixed. Universal and variable life allow some flexibility.

How does the cash value account work and what is the growth rate of permanent life insurance in Canada ?

• A portion of premiums go to the policy’s cash value savings account.
• Interest rates earned depend on type. Whole life policies guarantee a minimum rate around 3-5%.
• For universal life, rates fluctuate based on Canadian bond yields, typically 2-4% currently.

What fees or charges are involved for permanent life insurance in Canada ?

What fees or charges are involved?

• Fees include sales loads, cost of insurance, policy and administrative fees. These reduce cash value.
• Cost of insurance fees rise annually as you age. Ask for illustrations showing all fees.

What riders and add-ons are available?

• Common Canadian permanent life insurance riders include waiver of premium, living benefits, and accidental death.
• You can often add term life for children. Also guaranteed future insurability options.
• Riders increase costs but can customize coverage.

How financially stable is the insurance company?

• Only consider permanent life insurers rated A+ to A- by Canadian agencies like AM Best. This indicates superior financial strength.
• Check ratings every few years as they can change over time. Avoid any company below B rating.

Will I need ongoing financial advising during the life of the policy?

• An independent Canadian advisor can optimize your policy by reviewing needs, investments, loans, etc.
• Fees may apply for ongoing advising. Or you may incur hourly or per-service fees.
• Complex permanent policies typically benefit from professional advice.

Get Expert Guidance Finding the Right Permanent Life Insurance in Canada

Permanent life insurance is a complex product with many considerations. Work with a trusted advisor to ensure you find coverage aligned to your budget and goals.

As Canada’s leading life insurance news source, Lifebuzz – rank 1 life insurance newspaper in Canada – partners with top-rated, independent agents across the country. Answer a few quick questions and instantly connect with an advisor who will provide expert guidance and personalized policy recommendations.

Advisors in our network represent multiple top insurers like Insurance Direct Canada, Sun life, Manulife, RBC Insurance, and more. This ensures you get unbiased advice on the best permanent life insurance plan for your needs.

Get started now by tapping the button below. There’s no cost or obligation to learn more. This simple first step can provide the peace of mind knowing you and your family are protected.

FAQs About Permanent Life Insurance in Canada

How does permanent life insurance work in Canada?

Permanent life insurance provides lifelong coverage as long as you pay the premiums. Most policies also build up a cash value fund you can borrow from or withdraw. Most premiums go to insurance costs, expenses, and cash value.

What are the main types of permanent life insurance in Canada?

The primary types are:

• Whole life (fixed premiums, cash value, death benefit).
• Universal life (adjustable premiums and death benefit).
• Variable life (cash value invested in accounts you manage).

When should you consider permanent life insurance in Canada?

When you have lifelong financial dependents, are using it for estate planning/charitable donations, want to supplement retirement income, or need to cover final expenses.

Where can Canadians find the best permanent life insurance rates?

Rates vary significantly by insurer, so it’s critical to compare quotes from multiple highly-rated insurance companies to find the best value permanent policy.

Who benefits from the tax advantages of permanent life insurance?

Policy owners benefit from tax-deferred cash value growth. Beneficiaries receive the death benefit completely tax-free.

Why is permanent insurance more expensive than term insurance?

You’re paying for lifelong coverage rather than a set term and funding the policy’s cash value savings component. This costs more.

Can you change a permanent life insurance policy after purchasing?

With your whole life, you cannot adjust premiums or coverage. However, some universal and variable policies allow specific changes like altering death benefit face amounts.

Is permanent life insurance cheaper when you’re younger?

Yes, permanent life insurance premiums are significantly lower for younger, healthier policyholders and increase as you age. Buying early maximizes savings.

Do I need an advisor to buy permanent life insurance?

An independent advisor representing multiple insurers can guide you on the best policy for your needs and get quotes with the lowest rates.

Could permanent life insurance premiums ever increase?

Whole life premiums are fixed, but universal and variable life premiums could increase if cash value growth underperforms. Read policy terms closely.

What are the pros and cons of whole life insurance in Canada?

Pros: Predictable premiums, cash value and death benefit. Dividends can lower costs. Cons: Inflexible structure. Highest premium costs.

How does the cash value in permanent life insurance work in Canada ?

A portion of premiums fund the cash value savings. It earns interest and can be borrowed against or withdrawn. Using cash value lowers the death benefit.

What types of permanent life insurance have flexible premiums?

Universal life and variable life allow some flexibility to adjust premium payments within certain limits set by the policy terms. Whole life premiums are fixed.

How do I access the cash value of my permanent life insurance policy?

You can take out a loan against the cash value, withdraw, or fully surrender the policy to cancel it and collect the remaining cash value amount.

When can I cancel a permanent life insurance policy in Canada ?

You can surrender a permanent life policy and cancel coverage at any time. However, early-year withdrawals or surrenders will incur fees and tax obligations.

Who regulates permanent life insurance companies in Canada?

The Office of the Superintendent of Financial Institutions (OSFI) regulates permanent life insurers federally and provincially by regulatory bodies.

Can I deduct permanent life insurance premiums in Canada?

No, life insurance premiums are not tax deductible for individual policies in Canada. Some exceptions apply to business-owned policies.

Is the death benefit from permanent life insurance taxable income for beneficiaries?

No, the death benefit payout to beneficiaries from a permanent life insurance policy is not subject to income tax in Canada.

What medical tests do I need to qualify for permanent life insurance?

Insurers usually require a paramedical exam, including blood/urine samples and measurements. Higher face amounts may need additional tests.

How do I determine the right amount of permanent life insurance to buy?

Consider financial obligations, income replacement needs, and goals like funding college or estates. An advisor can help you calculate specifics.

Who should consider buying permanent life insurance in Canada ?

Permanent life insurance makes sense for people with lifelong financial dependents, those using it for estate planning or charitable giving, or those who want to supplement retirement savings. It provides lifelong protection and an inheritance for loved ones.

When should you avoid permanent life insurance in Canada ?

There may be better choices than permanent insurance if you only need coverage for several years. The high costs also make it prohibitive if you have a limited budget. People focused purely on maximizing investment returns are often better off using other vehicles.

Conclusion

Permanent life insurance provides lifelong protection and tax-deferred savings opportunities. But its premium costs are substantially higher than temporary term insurance. Take the time to determine if permanent insurance aligns with your budget and goals. Consult unbiased experts and get quotes from multiple top-rated insurers to find the best permanent policy.

ARTICLE SOURCES

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This includes directly interviewing financial planners, insurance advisors, tax professionals, actuaries, and other subject matter experts. We also reference official government data, industry white papers, academic studies, and other authoritative publications.

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For a deeper look at our dedication to accuracy, transparency, and independence, please refer to the Lifebuzz Editorial Policy. We take great pride in being Canada’s most trusted life insurance news source :

1. Canada Life – Permanent life insurance
2. Investopedia – Permanent Life Insurance: Definition, Types, and Difference from Term Life
3. Forbes Insurance – Permanent Life Insurance: What It Is and How It Works