Wants to know whole life insurance benefits in Canada? In this article, you’ll learn more about whole life insurance benefits in Canada.
As a parent, you want to make sure you have the right coverage and the right type of life insurance to protect your family.
It is great peace of mind knowing that your mortgage will be paid or your child’s education will be paid for in the unlikely event that you are not there.
What Is Whole Life Insurance?
Whole life insurance in Canada is a type of permanent life insurance that covers you until you die, whether in a few years (unlikely!) or decades later.
Whole life insurance covers you until death. Premiums and payments in case of death are the same throughout the entire life insurance contract. A life insurance policy is also an investment instrument.
A portion of your insurance premiums goes into a savings account that is tax-free and increases at a rate set by the insurer.
However, the return on investment is lower than other investment vehicles, in part because the provider withholds an administration fee for administering the insurance policy when other investment-type insurance companies are unable to do so.
How does life insurance work?
Whole life insurance provides coverage for a lifetime. With most life insurance plans, your premiums (either monthly or annual fees) stay the same regardless of changes in your health. In addition, your beneficiaries receive a tax-free death benefit after your death. Death benefit refers to the amount of money your beneficiaries receive when you die. You can designate your family or anyone you choose as beneficiaries. The beneficiaries are the people or people you want to protect financially. The exact amount of money they will receive after your death depends on:
- How much life insurance do you buy and
- Your policy type.
Top 4 Whole Life Insurance Benefits in Canada :
- Whole life insurance never expires
One of the most attractive benefits of buying a whole life insurance policy is that as long as you pay premiums, your death benefit will not expire. It is guaranteed to be paid out no matter when you die, be it tomorrow, five years from now, 80 years from now, or even later.
This is the key difference between whole life insurance and a term life insurance policy, which will only pay a death benefit if you die during the period (or duration) covered by your policy.
- Whole life insurance premiums remain unchanged
Premiums are monthly payments you make to an insurance company to pay for your policy. Whether you have whole life insurance or another type of insurance, you will have to pay premiums.
Certain types of insurance policies may require (or allow) you to adjust your premiums over time. But the premiums you pay for your whole life insurance are guaranteed to remain fixed and constant for as long as you have a policy. Your premium also contributes to your monetary value.
- Whole life insurance builds cash value
Cash value is one of the major benefits of living with whole life insurance. A portion of each premium you make is added to the cash value of your policy, which accumulates more slowly in the early years of the policy. It becomes money that you can access at any time for any reason. Since it is guaranteed never to fall, it can be an important and stable part of your financial plan.
- Whole life policies can earn dividends
In addition to guaranteed growth in cash value, many life insurance companies pay dividends2. While you may receive cash dividends or use them to pay some or all of your insurance premium, many people reinvest them in their policies. This can allow your death benefit and cash value to accumulate even faster.
Pros and Cons of whole life insurance in Canada
Pros of Whole Life Insurance in Canada
Whether a life insurance policy is a good choice for you may depend on both your psychology and your finances. Among its advantages:
As long as you stick to the premiums, a whole life insurance policy can last your entire life. On the other hand, a term policy is valid for a certain number of years, after which you will usually need to replace it if you still need insurance. During this time, it may be more difficult for you to purchase insurance or get it at an affordable price due to your age or health problems. However, people whose policy is expiring often have more options than they think to keep any insurance.
With whole life insurance in Canada, your premiums stay the same, as does your death benefit. Regardless of the form of life insurance with variable capital, you are subject to the ups and downs of the market. People who are not comfortable with investment risk and who want a permanent policy may be better off for whole life insurance.
- Tax breaks
As with other forms of permanent insurance, the cash value of a policy for the whole life is increased by the deferred tax in Canada. In contrast, if this money were in a regular non-retirement investment account, its interest and dividends would be taxed every year. Moreover, whole life insurance income (death benefits that go to the beneficiary) is generally tax-free in Canada, so investment gains not be taxed at all.
- Potential loan collateral
After a certain time, policyholders can borrow against the cash value of their insurance, as previously stated. This can be useful in a financial emergency for those who have exhausted all other sources of borrowing. And unlike other types of loans, they don’t have to pay back the money if they can’t or don’t want to. However, there are a few important caveats here, one of which is that the policy death benefit will be reduced accordingly if they die before paying it off.
Cons of Whole Life Insurance in Canada
On the other hand, whole life insurance also has some disadvantages that should be considered. This includes:
- Higher cost
Compared to term life insurance in Canada, whole life insurance is generally more expensive—5 to 15 times, according to Investopedia. One reason is that part of your bonus goes to fund this cash value account (so it’s not all wasted). Another reason is that insurance sellers typically receive higher commissions for selling life insurance policies than for term insurance policies, and this fact may also help explain why permanent insurance policies sell better than they do.
- Smaller death benefit
The consequence of whole life insurance being more expensive is that no matter how much you spend on insurance, you will receive much less death benefit than you could with a term policy. So if you need a lot of insurance, as you might if you have a young family that depends on your income, your whole life insurance policy may not provide adequate protection.
- Lack of investment control
With whole life insurance, the insurance company invests the money portion of your policy in any way it chooses. If you are an experienced investor and willing to take on the extra risk, you can earn higher returns by investing that money yourself. That’s why consumer advocates have long been advising people to “buy ahead and invest the difference.” (Of course, for this strategy to work, you need to invest the difference, not just spend it on other things.) With a variable policy, you have several investment options, but they are limited by the menu of funds the insurance company makes available to you.
Whether whole life insurance is right for you depends on your individual needs. This is more expensive than term life insurance, so for the same amount of money, your death benefit will be less. However, if you want to leave an inheritance to your heirs, it may be worth taking out a whole life insurance policy.