Compare Term, Whole & Universal Life Insurance Plans in Canada

Key Takeaways

There are two primary types of life insurance plans in Canada: term (coverage for a set period) and permanent (coverage for life.)
Two of the most common forms of permanent life insurance are whole life policies (prioritizing stability) and universal life policies (prioritizing flexibility.)
The right life insurance plan for you depends on your needs: short-term affordability, lifelong stability, or long-term flexibility.

Overview of life insurance plans in Canada

There are two primary types of life insurance plans in Canada:

Term life insurance, which provides coverage for a set period of time
Permanent life insurance, which provides lifelong coverage that doesn’t expire.

Within the category of permanent life insurance, there are many different kinds of policies. Two of the most common are whole life and universal life insurance.
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Comparing Term, Whole & Universal Life Insurance in Canada

All life insurance plans pay a death benefit. This is the pre-determined, tax-free sum of money that’s paid directly to the beneficiary (or beneficiaries) of your choice if you pass away. But different policies have different features, each offering a balance of cost, duration, and protection to suit the needs of Canadians.

Term life insurance: Provides temporary coverage for a set period, such as 10, 20, or 30 years. It’s a flexible and affordable choice for Canadians with dependents, a mortgage, or other financial obligations.‍
Whole life insurance: Provides permanent coverage that lasts your entire life, with most plans including guaranteed cash value accumulation. It’s best for Canadians looking for lifelong coverage, or who want to use their policy to build up guaranteed savings.‍
Universal life insurance: Provides permanent coverage that combines a death benefit with a separate, flexible, investment-oriented savings account. It’s best for high-net-worth individuals who have maximized their other tax-sheltered accounts for wealth accumulation, such as RRSPs and TFSAs.

Here’s a closer look at the differences between each type of life insurance:

	Term Life Insurance	Whole Life Insurance	Universal Life Insurance
Cost	Most affordable, especially earlier in life	Significantly more expensive than term	Can be more expensive than whole, with variable costs depending on structure
Duration	Temporary; ends when the term is up (e.g. 20 years)	Permanent (lifetime)	Permanent (lifetime)
Complexity	Very simple; choose the term length and coverage amount to match your needs	Can be complex; policies potentially include cash value and annual dividends	Highly complex; investment portion requires active management by the policyholder
Cash Value	None	Guaranteed growth over time	Growth potential alongside risk
Purpose	Debt repayment and income replacement for dependents	Estate planning	Sophisticated wealth transfer and tax planning

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Which is better: term life insurance or permanent life insurance?

Generally speaking, a term life insurance plan is the best option for most Canadians. Here’s why:

Affordability

Term life insurance premiums are much lower than those for permanent policies, especially for Canadians who are young and healthy. It allows you to get the most coverage for the lowest rate, which is helpful when you’re also juggling the costs of owning a home or raising children.

Flexibility

Term life insurance allows you to match your coverage to your life stage and financial needs. For example, you can get a 25-year life insurance term length to match a 25-year mortgage amortization. Or, a 15-year life insurance term length which ends when your young adult children are well on their feet.

Simplicity

Term life insurance plans are a straightforward contract. You pay a fixed monthly rate, and your loved ones receive a payout if you pass away during the term. The policy doesn’t grow in value, but you can invest the money you save in lower premiums for a potentially higher return elsewhere.
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When do you need term life insurance?

Whether you’re just getting established, buying a home, growing your family, or nearing retirement, term life insurance offers the best combination of affordability, flexibility, and simplicity for most Canadians. Let’s compare the most common term lengths and determine who they are best suited for.
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Life Insurance Term Length: Choosing the Right Option

	10 Years	15-20 Years	25-30 Years
Provides coverage for	Shorter term financial responsibilities: Student or car loans Final years of mortgage amortization Gaps in coverage	Longer-term financial responsibilities: Dependent children or aging parents Mortgage balance Loss of income	Long-term financial responsibilities: Young children A new mortgage with longer amortization Loss of income
Ideal for	Younger Canadians who are just starting out Older Canadians approaching retirement	Parents or people who are newly married Canadians who own a home	Younger Canadians New homeowners New parents or Canadians who plan to start a family

If you’re still unsure which option is right for you, our expert advisors are available to help. They can provide personalized support and advice without any pressure to purchase a policy.
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When do you need permanent life insurance?

Because everyone’s life and financial situations are unique, there are many life insurance options available on the market to help Canadians find the right fit. Whole and universal life policies have a place, and could be the right option if you:

Have lifelong dependents: If you have a dependent who will continue to rely on your support throughout your life (for example, a child with a disability), you might benefit from a whole life policy to ensure their ongoing care.
‍Have a high net worth: If you’ve already maxed out your other tax-advantaged accounts (FHSA, RRSP, TFSA) and are comfortable actively managing investments within a defined policy structure, you might benefit from a universal life policy.
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Easy and affordable life insurance at your fingertips

With Blue Cross Life, you can customize a term life insurance plan around your life stage and specific needs. Our streamlined, fully digital process can provide a personalized quote with just a few clicks. When you’re ready, complete your application in under 20 minutes, with many eligible applicants approved right away.

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FAQs: Term, whole, and universal life insurance

What does a life insurance plan include in Canada?

Life insurance plans in Canada provide a tax-free sum of money (or death benefit) paid directly to the beneficiary (or beneficiaries) of your choice if you pass away. Different policies will have specific features, each providing a balance of premium cost, coverage duration, and level of protection to suit the financial needs of Canadians.

What’s the difference between term life and universal life insurance in Canada?

The main differences to understand when comparing term life insurance vs. universal life insurance are policy duration, cash value, and cost of premiums.

Term life insurance provides temporary coverage for a set term. These simple policies have no savings or investment component, so they do not provide cash value outside of the coverage amount (or death benefit.) It’s typically the most affordable type of life insurance in Canada.

Universal life is a type of permanent life insurance. These complex policies include a self-directed investment vehicle that allows cash value to grow tax-deferred. The premiums tend to be significantly higher due to the lifelong coverage and additional savings component, and you bear the investment risk of the portfolio.

What’s the difference between whole life and universal life insurance in Canada?

Whole life and universal life are both forms of permanent life insurance. They both provide lifelong coverage, and both include a tax-advantaged cash value component. The main differences to understand when comparing whole life vs. universal life in Canada are their growth potential and level of complexity.

Whole life plans provide guaranteed cash value that grows at a fixed rate set by the insurer. The premiums are fixed and the policy requires very little hands-on management. It’s a good option for Canadians who value security and simplicity, but the premiums tend to be very expensive (especially when purchased earlier) due to the inherent lifelong guarantee.

Universal life plans provide variable cash value based on the performance of the market. The growth has potential to be higher, but it’s not guaranteed. You act as the portfolio manager for the cash value component and select an investment mix based on your risk tolerance. It’s a good option for Canadians who value flexibility and control, but you should be very comfortable managing funding strategies and performance.

Which is better: term life insurance or whole life insurance in Canada?

Ultimately, the right life insurance policy for you depends on your specific needs and goals. When comparing term vs. whole life insurance in Canada, consider how long you need coverage, how much you can afford to spend on premiums, and whether you want a savings component.

Term life insurance plans provide temporary coverage for a set term. This type of policy has no savings or investment component, so it does not provide cash value outside of the coverage amount (or death benefit.) It’s typically the most affordable type of life insurance in Canada.

Whole life insurance provides permanent coverage that lasts your entire lifetime. This type of policy includes a savings component with guaranteed cash value that grows at a fixed rate set by the insurer. The premiums tend to be significantly higher (especially when purchased earlier) due to certainty it provides in the long run.

Which is better: term life insurance or universal life insurance in Canada?

As with all life insurance choices, the right policy for you depends on your specific needs and goals. When comparing term vs. universal life insurance in Canada, consider how long you need coverage, how much you can afford to spend on premiums, and your approach to financial management.

Universal life insurance provides permanent coverage. This type of policy includes an investment component with market-based, variable cash value. While these plans offer more flexibility, they also come with greater complexity and higher risk. Premiums also tend to be higher, since you are funding both insurance and investments over your entire lifetime.

How much does a term life insurance policy cost in Canada?

Term life insurance plans can start around $20-30 a month, but the exact cost of your monthly premium is determined by factors like your age, sex at birth, lifestyle habits, and medical history. Because premiums tend to increase with age, many Canadians choose to purchase life insurance when they’re younger and healthier.

Can I switch from term life insurance to permanent life insurance later?

Some insurance providers allow you to convert existing term life coverage to a permanent life insurance plan. However, not all term life policies include this option. Always speak with your insurance advisor to confirm your particular policy's conversion options, deadlines, and any costs that would be incurred with a new permanent policy.

How do I choose the right term length for my life insurance policy?

Term life insurance offers flexible coverage at affordable rates, so you can choose the right amount of protection and term length without overspending. The best term length for you will depend on your unique financial situation and specific needs. Here are some questions to consider:

How long do you expect to have financial dependents, such as children or aging parents?
How many years do you have remaining on mortgage or debt repayments?
How many income-earning years do you have left?
What kind of lifestyle do you anticipate in retirement?

Learn more about how to choose the right term length for your life insurance policy.

Comparing Life Insurance Plans: Term, Whole, or Universal?