Choosing between term vs whole life insurance is one of the first decisions Ontario families face when they shop for coverage. Both types pay a death benefit to the people you name. However, they work in very different ways. In this guide, we explain how each one works, how costs change over time, and how to decide which fits your family.
What is term life insurance?
Term life insurance covers you for a set period, such as 10, 20 or 30 years, or until a certain age. If you pass away during the term, your beneficiaries receive the death benefit. On the other hand, if the term ends and you’re still living, the coverage simply stops. There is no payout and no money back.
Because it protects you for a limited time, term coverage usually costs less when you first buy it. As a result, many young families use it to cover their biggest responsibilities, such as:
- The mortgage on your home
- Your income while the kids are growing up
- Childcare and education costs
- Debts like car loans and lines of credit
Many term policies can be renewed when the term ends. Keep in mind, though, that renewal premiums are usually much higher, because they’re based on your age at that time. Some policies also let you convert to permanent coverage within a set time limit. So, it’s worth checking your contract for these details.
What is whole life insurance?
Whole life insurance is a type of permanent life insurance. In other words, it’s designed to cover you for your entire life, as long as you keep paying the premiums. Your premiums are generally set when you buy the policy. After that, they stay the same as you age.
In addition, whole life policies build a cash value over time. According to the Financial Consumer Agency of Canada, whole life policies often include a guaranteed minimum cash value. You may be able to borrow against it or receive it if you cancel. Still, the amount you get back is typically less than the premiums you paid.
Some whole life policies are also “participating.” This means they may pay policy dividends. That said, dividends are not guaranteed.
Universal life is another form of permanent insurance. It pairs coverage with an investment account, so its cash value can rise or fall. We’ll keep this article focused on term vs whole life insurance, but it’s good to know the option exists.
Term vs whole life insurance: the key differences
Here’s a quick side-by-side look at how the two compare:
- Length of coverage: term covers a set period, while whole life covers your lifetime.
- Starting premiums: term is usually lower at first, while whole life starts higher.
- Premium changes: term premiums usually rise at renewal, while whole life premiums are generally level.
- Cash value: term has none, while whole life builds cash value over time.
- Simplicity: term is easy to compare, while whole life adds features you’ll want explained.
For more background, the Financial Consumer Agency of Canada offers a clear overview of life insurance types.
A simple example (illustration only)
Consider Priya and Amit, both 35, with two young children and a 25-year mortgage. They want their family to stay in the home and cover living costs if one of them passes away. This is a made-up family for illustration only, and your situation will be different.
For example, a 25-year term policy could match the years when their mortgage and the kids’ needs are highest. Meanwhile, a smaller whole life policy could help with final expenses and leave something for the children, no matter when either parent dies. In fact, many families end up with a mix rather than choosing just one.
When term life insurance may make sense
Term coverage is often a good fit when:
- You need a large amount of coverage on a tight budget
- Your biggest needs have an end date, like a mortgage or raising children
- You want a simple policy that’s easy to compare across insurers
- You plan to build your savings separately, outside of insurance
When whole life insurance may make sense
On the other hand, whole life coverage may suit you when:
- You want coverage that lasts your whole life
- You’d like to leave an inheritance or help pay final expenses
- You value level premiums that don’t rise with age
- You like the idea of building cash value inside the policy
Questions to ask before you choose
Before you decide between term vs whole life insurance, it helps to answer a few simple questions:
- How long does my family really need protection?
- How much coverage do we need? Our guide How Much Life Insurance Do I Need? can help.
- What premium fits comfortably in our budget, now and in the future?
- Do I want lifetime coverage, or coverage for my working years only?
- Can my term policy be renewed or converted later?
Finally, remember that life insurance agents in Ontario must be licensed by the Financial Services Regulatory Authority of Ontario (FSRA). It’s always a good idea to work with a licensed agent who explains your options clearly.
Get help comparing your options
The right answer depends on your family, your goals and your budget. That’s why we start with a free, no-obligation needs review. Together, we’ll compare options from several Canadian insurers and explain each one in plain language. Learn more on our life insurance page, or book your free needs review today. You can also call us at (647) 770-2694.
This article is general information, not personal insurance, tax or legal advice. All coverage is subject to the insurer’s underwriting approval. Rajesh Vaghela is a licensed insurance agent in Ontario (licence no. 26245978) and an independent associate of World Financial Group (WFG).