Life insurance, in detail
Term, whole and universal life — explained plainly.
These are the three main kinds of life insurance most people in Ontario are choosing between. Read the one that fits your situation, then ask us to compare options for your age, health and budget. Premiums, eligibility and benefits are set by the insurer and by the policy wording — nothing here is a quote or a guarantee of coverage.
Term life
Term life insurance
Introduction
Term life insurance covers you for a set number of years — a term you choose when you buy, often 10, 20 or 30 years. If you die during that term, the death benefit is paid to the people you name as beneficiaries. If you are still living when the term ends, the coverage ends, unless the policy lets you renew it or convert it to permanent coverage.
Why it matters
Most people buy term life for a specific job that lasts a limited time: replacing family income while children are young, paying off a mortgage, covering debts, or protecting a business partner. It is the simplest form of life insurance, and for the same amount of coverage it usually starts out costing less than permanent insurance, because it does not build cash value and it only pays if you die during the term.
How it works
- Choose a term and an amount. A common starting point is enough to replace several years of income, plus a mortgage and other debts — the planning tool further down this page can give you a rough sense of the amount to discuss.
- Pay premiums during the term. Premiums are usually level for the term you chose.
- At the end of the term, you may be able to renew — often at a much higher premium — or convert to a permanent policy without new medical evidence, but only if your policy includes those options. Check both before you buy, not at renewal time.
Who it is usually for
Young families, people with a mortgage, and anyone whose main need is income protection for the next 10 to 30 years. It is also often the starting point when the budget is tight and the priority is the largest death benefit for the premium.
What to check before buying
- Does the term line up with your mortgage and with the years until your children are financially independent?
- What happens at renewal — what will the new premium be, and for how long can you keep renewing?
- Can the policy be converted to permanent coverage, and until what age?
- What exclusions and waiting periods apply, and what does underwriting ask about your health, smoking and occupation?
Common questions
What if I outlive my term? The coverage ends and no benefit is paid. That is normal for term insurance — it is protection for a period, not a savings plan.
Can I change the amount later? Usually you would apply for a new policy or an additional policy, subject to underwriting at that time. Some policies allow limited increases without a new application — ask us to confirm what yours allows.
Whole life
Whole life insurance
Introduction
Whole life is permanent insurance: it is designed to stay in force for your whole life, as long as premiums are paid and the policy requirements are met. Premiums are usually level — the same amount year after year — and the policy builds a cash value over time, subject to the policy terms.
Why it matters
People choose whole life when they want coverage that does not expire. Common reasons are final expenses, leaving money to family or a charity, estate planning, and having a predictable premium that will not rise with age. The cash value is a secondary feature, not the main reason to buy — the main reason is lifelong protection.
How it works
- Lifelong coverage. Unlike term, there is no end date built into the policy, provided premiums continue.
- Level premiums. You generally pay the same premium throughout, which makes long-term budgeting easier.
- Cash value. Part of each premium goes toward a cash value that grows over time. Depending on the policy, you may be able to borrow against it or surrender the policy for its cash value — both have costs and tax considerations to discuss before you rely on them. Cash value in the early years is usually small.
- Participating vs. non-participating. Some whole life policies pay dividends when the insurer's experience allows. Dividends are not guaranteed, and they should never be counted on to pay future premiums unless the policy is specifically set up that way.
Who it is usually for
People who want coverage for life, who have a long-term need such as estate or final-expense planning, and who can comfortably afford a higher premium than term for the same amount — and keep paying it for many years.
What to check before buying
- Can you afford this premium not just this year, but for decades? A policy that lapses early gives you little back.
- Is the policy participating or non-participating, and are dividends guaranteed? (They are not, on participating policies.)
- What are the surrender charges and the cash value in the first 10 years?
- Is there a limited-pay option — for example, premiums for 20 years, then coverage continues — and what does it cost compared with paying for life?
Common questions
Is whole life an investment? No. It is insurance first. Cash value grows slowly, especially early on, and it should not be compared with a stock market return.
What happens to the cash value when I die? In most whole life policies, your beneficiaries receive the death benefit, and the cash value stays with the insurer. Confirm how your specific policy handles this before you buy.
Universal life
Universal life insurance
Introduction
Universal life is also permanent insurance, but with more flexibility than whole life. It combines lifelong protection with a cash-value component that you can influence: within limits set by the policy, you can usually adjust how much premium you pay and how the cash value is invested. That flexibility comes with more moving parts — and more to keep an eye on.
Why it matters
People choose universal life when their income or needs are expected to change, when they want lifelong coverage plus a place to hold cash value, or for estate and business planning where flexibility matters. It can adapt as life changes, but only if it is reviewed regularly.
How it works
- Flexible premiums, within limits. You can often pay more in good years and less in lean years, as long as enough cash value remains to cover the cost of insurance.
- Cost of insurance. The insurer deducts a cost of insurance from your cash value. On some policies this cost rises as you get older, so a premium that worked at 40 may not be enough at 70.
- Investment component. Cash value can be placed in interest-based or market-linked investment options offered by the insurer. Market-linked options can go up and down, and the investment risk is generally yours — returns are not guaranteed.
- Lapse risk. If cash value runs too low to cover the cost of insurance, the policy can lapse and coverage can end. This is the most important risk to understand with universal life.
Who it is usually for
People who want permanent coverage and flexibility, who are comfortable with investment choices and regular reviews, and who have a long-term estate or business need. It is generally not a good fit for someone who wants to set it and forget it, or who may struggle to keep up with reviews and premium changes.
What to check before buying
- How does the cost of insurance change with age on this policy — level, or increasing each year?
- What investment options are available, what are their fees, and who bears the investment risk?
- What premium is needed to keep the policy in force to age 100 in the insurer's illustration, and what happens if returns are lower than illustrated?
- How often should the policy be reviewed, and what happens if a review is missed?
Common questions
Is universal life the same as whole life? No. Both are permanent, but whole life usually has level premiums and a more predictable cash value, while universal life trades some of that predictability for flexibility.
Can I take money out? Usually yes, by withdrawal or loan, subject to policy terms, fees and tax considerations — but taking money out reduces the cash value and can put the policy at risk of lapsing. Talk to us before withdrawing.
This page is general information, not personal advice. The right type and amount depend on your income, debts, family, health and goals. Tell us about your situation and we will compare suitable options and their policy wording before you decide. Life quotes are request-based — there is no instant life premium on this page.
