No one wants to think about death, but having a plan that financially protects your loved ones and dependents in the event of your death is best.
In today’s world, it’s more important than ever to have some form of life insurance in place. If you’re looking for peace of mind that you and your loved ones will be taken care of no matter what happens, then whole life insurance may be the right choice.
Whole life insurance is a type of life insurance offered by the biggest insurance companies in Canada that provides coverage for your entire lifetime. It combines death benefits and cash value, which can be used during your lifetime or passed on to your beneficiaries.
So what exactly is whole life insurance, and is it the right choice for you? How does it work? And what are its benefits? This blog post will answer all these questions and more.
Let’s take a closer look.
What is Whole Life Insurance?
Whole life insurance is a type of permanent life insurance policy that offers lifelong coverage. As long as you continue paying your premiums, you are covered.
Whole life insurance offers tax-free death benefits to your beneficiary regardless of when your insurance claim starts. It offers you lifelong coverage, consistent premiums, and additional funds for your lifetime.
In contrast to term life insurance, which offers coverage for a specific term (10, 20, or 30 years), whole life insurance is active till you die. In addition, whole life insurance premiums stay the same throughout your lifetime.
However, because you offered lifelong coverage, whole life insurance premiums are usually higher than other types of life insurance.
Further, whole life insurance comes with an investment component called ‘cash value’. A portion of your premiums go into the cash value account and grows on a tax-deferred basis at a rate set by the insurance company.
Learn more about the difference between term life insurance vs whole life insurance.
How Does Whole Life Insurance Work?
Whole life insurance offers you lifelong coverage while paying consistent and guaranteed premiums till you die. Your insurer pays your beneficiaries a predetermined death benefit when you die.
When you pay your monthly or annual premiums, a part of that premium goes to the cost of insuring you. The other part of the premiums is used for investments. The insurance company manages the investments, generates income, and gives it back to you as a cash value (a savings account held by the insurer).
Whole life insurance allows you to access this cash value anytime during your lifetime. You can use this cash value for whatever purpose you want. You can also borrow against or withdraw from the cash value to sort out expenses.
In addition, whole life insurance allows you to partake of the insurer’s earnings when you choose participating whole life insurance policies.
Benefits of Whole Life Insurance
Whole life insurance comes with many advantages over other types of insurance policies. Below are a few of the benefits.
- Lifelong protection: Whole life insurance offers you a lifelong contract with no end date. You are covered as long as you keep paying your premiums. Your beneficiaries will receive your policy’s payout regardless of when you die.
- Builds cash value: The cash value component is one of the advantages of whole life insurance over term life insurance. Whole life insurance offers a savings account that grows cash tax-deferred over time. You can withdraw from or borrow against the cash value and use it for whatever purpose you want.
- Consistent premiums: With whole life insurance, your premiums stay the same throughout your policy’s lifetime. Some whole life insurance policies even allow you to pay premiums in one payment.
- Potential dividends: There are whole life insurance policies that let you earn annual dividends. You can collect the dividends in cash, reinvest them into your policy to accumulate more cash value, or use it to pay part of your future premiums.
- Leave a legacy: Your death benefit creates a tax-free inheritance that can be passed to your children, loved ones, or your favorite charity.
- Estate planning: Whole life insurance offers a predetermined death benefit. Knowing that money is in place, you can plan how to distribute your estate and pay for your final expenses.
Types of Whole Life Insurance
Whole life insurance is one of the most important financial decisions you will make. It is a way to financially protect your family and loved ones in the event of your death.
There are several types of whole life insurance. Whatever your financial needs and goals are, you will likely find the type that suits you. Talking to a financial advisor or insurance expert is important to find the right policy for you.
Standard Whole Life Insurance
This type of whole life insurance offers level premiums that stay the same throughout your lifetime and a guaranteed cash value that grows tax-deferred. However, you cannot decide how the cash value is invested.
Limited Payment Whole Life Insurance
You stop paying premiums after a couple of years, maybe 10 or 20 years. But the policy lasts throughout your lifetime.
Single Premium Whole Life Insurance
Instead of monthly premium payments, you make a single large payment, and the insurer promises a death benefit when you die.
Universal Life Insurance (UL)
Universal Life Insurance is a type of whole life insurance that offers flexibility. It allows you to adjust the premiums and death benefits as you want. However, the cash value growth is not guaranteed, but you can decide how the insurance company invests the cash value.
Variable Universal Life Insurance (VUL)
In this case, your insurance policy’s death benefit and cash value are tied to an investment account. Suppose the value of the investment account goes up. In that case, your death benefit and cash value will increase. Otherwise, if the investment underperforms, they go down.
Participating and Non-participating Whole Life Insurance
Participating whole life insurance gives you the right to receive earnings from the insurance company’s profits in the form of an annual dividend.
You can decide to receive dividends in cash, purchase additional coverage, or reduce your future premiums. In contrast, with non-participating whole life insurance, you don’t receive any dividend from your insurer.
Final Expense Insurance
This whole life insurance type is usually very affordable and easy to qualify for because it offers a small death benefit. It is designed to pay for only end-of-life expenses, such as medical bills and final or funeral expenses.
How Much Whole Life Insurance Costs in Canada
Regarding the cost of whole life insurance policies in Canada, there is no one-size-fits-all price. But how much does whole life insurance cost? The answer varies depending on several factors, including age, health, lifestyle, smoking status, gender, occupation, family medical history, hobbies, and coverage amount.
However, whole life insurance is typically more expensive than term life insurance. This is because whole life insurance policies provide coverage for your entire life, not just for a set period of time. As a result, whole life insurance policies tend to have higher premiums than term life insurance policies.
A few general rules of thumb can help you determine what you might pay for whole life insurance premiums.
Generally, young and healthy people tend to pay less for life insurance than older people. This is because they are considered to be a lower risk by insurance companies. Also, smokers typically pay more for life insurance than non-smokers. This is because smoking is considered to be a significant health risk.
Final thoughts on Whole Life Insurance
If you’re looking for a policy that offers peace of mind and long-term financial stability for you and your family, whole life insurance may be the right choice.
Whole life insurance is a valuable investment that provides coverage for your entire life. It can be a significant savings vehicle, allowing you to build up a cash value that you can access during your lifetime, especially if you have maxed out all other investment vehicles.
Contact me if you need help deciding if whole life insurance is the best fit for your needs and goals. I can help you find the best policy and quotes from the biggest insurance companies in Canada.
Hi, I'm Adeola Adegoke. I am a licensed Insurance Broker in Manitoba, and I hold a master’s degree in Mathematical Sciences (with a major in Financial Modeling) from the African Institute for Mathematical Sciences (AIMS), Tanzania.
Also, I have a second master's degree in Statistics from the University of Regina, and I am currently pursuing my Ph.D. in Statistics at the University of Manitoba.
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