Whole life insurance covers you for life, as long as premiums are paid, and builds a cash value inside the policy. Premiums are fixed, and much higher than term for the same coverage, because the insurer knows it will eventually pay out.
Participating or non-participating
- Participating ("par") whole life pays policy dividends from the insurer's participating account. Dividends aren't guaranteed, but they can buy extra paid-up coverage, reduce premiums or be taken as cash. Examples include Canada Life's Achiever plans, Sun Life's Sun Par, Equitable's Equimax, iA PAR, Empire Life's EstateMax and Optimax Wealth, and Desjardins' par plans.
- Non-participating whole life has guaranteed premiums, values and death benefit, with no dividends.
How you pay
Most plans let you choose how long you pay: 10-pay or 20-pay (higher premiums, finished sooner), or life-pay (lower premiums, paid for life or to age 100). Paying faster suits people who want it paid off before retirement.
When whole life makes sense
- leaving a guaranteed inheritance, or paying the tax on an estate, a cottage or business shares
- covering a lifelong need, such as a dependent with a disability
- high earners who've filled their RRSP and TFSA and want tax-sheltered growth
- insuring a child young, at low cost, with lifelong cover
When term is the better buy
If the main need is protecting a mortgage and young children for 20 years, term gives far more coverage per dollar. Many families buy term now and convert part of it to permanent later, when the budget allows. See term vs whole life and is whole life worth it?
Common questions
Can I borrow against my whole life policy?
Yes. Most whole life policies allow loans against the cash value. Unpaid loans and interest reduce the death benefit.
Are whole life dividends guaranteed?
No. Participating dividends depend on the insurer's results and dividend scale, which can change. Ask to see illustrations at more than one dividend scale.
What happens if I stop paying?
Depending on the policy, you may be able to take the cash value, keep a smaller paid-up policy, or use the cash value to keep cover going for a while. Talk to Pankaj before you cancel.