Term vs. Permanent Life Insurance: What's Better for You?

In This Article

Key takeaways:

  • The main difference between term and permanent life insurance is that term life insurance provides coverage for a fixed period of time, usually between 10 and 30 years, and permanent life insurance provides coverage for the rest of your life.
  • Permanent life policies often include an investment component; term does not.
  • A permanent life insurance policy is usually five to 15 times more expensive than a comparable term policy.
  • Most Canadians need term life insurance because you only pay for it only when you need it the most.
  • Life insurance is designed to replace income, not generate income. Permanent life insurance is not a good investment bet.

Term vs. permanent life insurance

Term and permanent life insurance are the two main types of life insurance policies available in Canada.

The difference between these two types of policies:

  • Term life insurance pays out a death benefit to your beneficiaries if you pass away during the term period.
  • Permanent life insurance covers you for the rest of your life after you activate your policy.

Term policies are definitely becoming very popular in Canada. Individual (i.e. not group) term life sales grew 40 per cent in Canada in 2021, more than double that of whole or universal life.

Let's look at each type further.

Term life insurance

  • Term lengths are usually 10, 20, or 30 years.
  • Coverage amount can vary between $100,000 to $5M.
  • You choose your policy length and coverage amount.
  • Some term life policies are renewable.
  • Some term life policies can be converted to a permanent policy.
  • Ideal for: Couples, families with minor children, mortgage holders and business owners.

Permanent life insurance

  • Permanent life insurance is guaranteed life insurance coverage that covers you for your entire life.
  • It's often called lifetime or lifelong coverage. 
  • Does not need to be renewed.
  • Some policies have fixed premiums, others let you adjust your premiums and death benefit
  • If you stop paying your premiums, your policy expires.
  • There are two main types of permanent life insurance: whole life insurance and universal life insurance.
  • Some permanent life insurance policies have a savings component, also called cash value.
  • Ideal for: High-net worth individuals or those with complex estate planning needs.

This quick video is a great primer:

So, permanent life insurance is a no-brainer. Right?

At this point, you may be thinking: I'd rather have life insurance that's guaranteed to pay out and that builds a cash value. That sounds like the Cadillac (or Tesla?) of life insurance!

But more isn't necessarily better when it comes to life insurance. 

The purpose of life insurance is to protect the people who are financially dependent on you.

This means you really only need life insurance when your children are minors or your debt, like a mortgage, is at its highest.

You may need more coverage while caring for dependents like children or older parents, then less coverage later on.

Most people are better off buying term coverage instead of permanent coverage because they'll need coverage for only a certain number of years. 

How do you know how much coverage you need? You'll have to do a needs analysis to know for sure, or use our term life insurance calculator.

Who needs term vs permanent life insurance

You definitely need life insurance if you have people in your life who depend on your income. But what specific life situations warrant term life insurance vs. permanent life insurance?

Who needs term life insurance?

  • Parents with minor children
  • Couples who rely on each other's income
  • Mortgage holders
  • Business owners
  • Couples near retirement without sufficient retirement savings
  • People supporting elderly parents

Sounds like you? PolicyMe has almost $5 billion in coverage sold in Canada, with a fast and easy online application process that our customers love.

Who needs permanent life insurance?

  • High net worth individuals ($10M+ in assets)
  • Canadians with complex estate planning needs
  • People who need a forced way to save for retirement

Pros and cons of permanent life insurance

That said, there are times where having a permanent policy makes sense. 

Let’s dive into the advantages and disadvantages of permanent life insurance, plus who it's best suited for.

Pros of permanent life insurance

One of the advantages of permanent life insurance is that it can help with estate planning for high-net-worth Canadians.

  1. It could help pay estate taxes when you pass away: Having a permanent life insurance policy could come in handy if you anticipate paying estate tax on your estate when you pass away. Unlike a mortgage, estate tax isn't an expense that you can pay off earlier in life when a term life insurance policy still covers you.
  2. It might help you pass on a second residence to heirs: A permanent policy could be purchased as a way to offset the eventual tax liability if you own a second residence and want to pass it on to the next generation.
  3. It could help cover permanent expenses: A permanent policy may be something to consider if you know you’ll have lifelong costs, such as a child or other dependent with a disability you support, which may cause your coverage needs to stay level.
  4. It could help if you don’t have time for other options: Even if it’s more expensive to pay for each month, a permanent policy could offer you peace of mind if you don’t have the luxury of putting money away over time.

Cons of permanent life insurance

Permanent life insurance isn’t for everyone. Here are some disadvantages of permanent policies:

  1. It’s costly: Permanent life insurance rates are usually a whopping five to 15 times the cost of term insurance policies!
  2. It assumes you have the same financial obligations forever: If you don't expect to have dependents like young kids or ageing parents or debt like your mortgage well into the future, why pay insurance premiums for the rest of your life?
  3. It has an investment component you don’t need: Permanent life insurance differs from term life insurance in several ways, one of which is building some cash value. The cash value is an investment vehicle that's coupled with the insurance policy.
  4. It prevents more strategic investment decisions: You'll earn interest on the cash value of your permanent life insurance policy. But this amount will usually be lower than what you'd get if you invested your money in other ways.

More about permanent life insurance

Is permanent life insurance the same as whole life insurance?

Not quite, though you’ll often hear the terms discussed together. Permanent life insurance refers to the types of life insurance policies that cover you over your lifetime. 

No matter when you pass away, your beneficiary will receive your death benefit as long as you have paid your premiums.

Some plans build cash value over time, which means you can access a small portion of the payments you’ve paid over the course of the policy if you surrender, or cancel, the policy.

Whole life insurance is just one example of a permanent policy. 

Many people don’t realize permanent life insurance is an umbrella term that refers to different types of lifetime coverage policies. 

  1. Whole life insurance is the traditional option people choose from permanent types of coverage. It’s a set-it-and-forget-it policy where the monthly premium and death benefit are guaranteed for life.
  2. Universal life insurance is more customizable but more complex. It requires you to update it annually and make sure you’re paying enough that it doesn’t lapse.

Why is permanent life insurance more expensive than term life insurance?

If you have a term life insurance policy, your insurer has to pay out your death benefit if you pass away while holding your policy. But if you have a permanent life insurance policy, your insurer will have to pay up sooner or later. 

How do insurers account for this guaranteed expense? By making permanent life insurance much more expensive than term life insurance coverage.

So even though the idea of getting lifelong coverage may seem appealing, permanent life insurance is a sky-high expense that you may not even need.

It can be easy to believe that the higher premiums for permanent life insurance policies mean better coverage. However, it’s not quality that bumps up the price of permanent life insurance products. It’s simply a reflection of a few additional components and features that you may or may not need. 

If you can’t make use of these additional benefits, they aren’t worth the extra expense. 

Why you probably don't need permanent life insurance

Life insurance protects your family financially when you pass away and your income isn't around anymore to support them. You can think of it as a security blanket, just not the warm and fuzzy kind you had as a kid.
father and son in kitchen for article on why you might not need permanent life insurance

Your life insurance needs will shift as your life does and a permanent policy doesn’t give you that flexibility.

When you consider this, it’s easy to see why you might not need permanent life insurance.

Is permanent life insurance a good investment?

There is an investment component to permanent life insurance, making it harder to understand than term life insurance. It can seem like a positive feature and a good selling point, but for most people, keeping investment funds in permanent policies doesn’t offer the same flexibility that a separate investment fund would. 

On top of this, the premiums on a permanent policy will be significantly higher, meaning you’ll have less to invest overall. If you calculate what you’ll pay for a term life insurance policy compared to a permanent one, you’ll find the difference significant. 

Permanent life insurance policies are more expensive across the board than term life policies, sometimes many times over.


Next, calculate what you could earn if you invested it separately, earning interest in a traditional investment account over the next 10 or 20 years. 

In most cases, a term life policy is ideal to meet your family’s coverage needs, and you can invest the difference in a separate investment account. This way you have the freedom to control how it’s invested and earn greater returns.
Young child and baby sitting on deck for article about why you might not need permanent life insurance

Does permanent life insurance have a cash value? 

Yes, permanent life insurance does have a savings component that is commonly known as cash value. That might be all most people know about it when they ask an advisor for “cash value life insurance.” 

The longer you’ve held a policy and the longer you’ve paid into it, the more the cash value of your policy grows. Always keep in mind though that this savings component comes from the higher premiums you’re paying.

Cash value is sometimes offered as a selling feature for these policies because, in many cases, you can choose to cash in or borrow funds against this savings component. However, cashing in or borrowing against these life insurance policies is rarely a wise financial decision.

Cost of permanent life insurance vs. term life insurance

A permanent life insurance policy is usually five to 15 times more expensive than a comparable term life insurance policy. The cost of life insurance is a valid discussion point simply due to the dramatic cost difference between the different policies

Check out the table below for more details on how the costs of term versus whole life insurance stack up.

$250,000 20-year term life insurance $250,000 whole life insurance
Male, aged 30 $18/month $135/month
Female, aged 30 $15/month $121/month
Male, aged 40 $28/month $204/month
Female, aged 40 $22/month $178/month
Male, aged 50 $72/month $327/month
Female, aged 50 $51/month $279/month

If you want the best bang for your buck, term life insurance is your best bet for affordable life insurance.

Curious about how much term insurance might cost you? Use our term life insurance quote calculator to see your monthly rate in seconds.

In summary: term life insurance is a better choice than permanent for most Canadians

Depending on your needs, you may realize that you can skip out on the lifetime financial commitment of buying permanent life insurance and opt for term life insurance instead and its many advantages

Or you may decide that buying a permanent policy truly does make sense in your case.

No matter which type of life insurance you end up buying, be sure to shop around for the best rates. Different life insurance companies will have different rates, even for the same type of term policy or permanent policy. 

FAQ: Permanent life insurance

How long does permanent life insurance last?

Permanent life insurance is designed as lifelong financial protection. It lasts your entire lifetime, as long as you keep the policy in force by keeping the premium payments up to date. 

It’s wise to read the details on any permanent life insurance policy, as these policies last until you pass away or until it runs out of money. If you stop paying the premiums, the cash value could lapse immediately if you haven’t built up much of the savings component.

Why is permanent life insurance bad?

Permanent life insurance isn’t necessarily bad. It’s just not a good fit for most people.

In most cases, people buying permanent policies such as whole life insurance or universal life insurance either don’t understand how the plan works and is paid for or don’t ever access the benefits.

A small percentage of people could benefit from this type of policy, and if that’s true for you, we’ll tell you. However, our goal is to provide you with the best policy to offer you and your family the best protection that meets your needs. 

In most cases, we find that term life insurance is the best option, so that is what we recommend. 

Laura McKay

COO & Co-Founder

About the Author

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