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Simply put, whole life insurance or permanent life insurance is insurance that lasts for your whole lifetime. As long as you pay your required premiums, your life insurance will never expire, so you don’t have to worry about outliving your coverage.

Like all life insurance, whole life insurance pays out a tax-free death benefit to your beneficiaries when you pass away. Whole life insurance requires premium payments, usually made monthly or annually, which covers the cost of insurance. Cost of insurance varies based on many factors, such as the age of the life insured when the policy is issued, gender, smoking status, medical rating, and coverage amount.

When buying a whole life insurance policy, you will have the choice of a participating or non-participating policy. The “participating” aspect refers to an insurer’s participating account, which can lead to extra growth and benefits being directed your way.

An insurer’s participating account is made up of the funds you contribute to your policy (i.e. premiums), combined with all other participating policy owners’ premiums. These funds are invested by the insurance company, and if there is growth, the company pays out dividends to participating policy owners.

Factors that can influence participating account growth: 

1. Market performance

2. Policy owner lapses and loans

3. Death benefit payment across the company 

If earnings exceed the amount required to meet the company’s obligations to policy owners, dividends may be distributed to owners of participating policies. They are never guaranteed, but you do have a few options with respect to what you do with any dividends your policy receives. You can allow your dividends to accumulate, and potentially accrue interest – this growth is not taxable unless you withdraw the dividends from your policy. You can also use those dividends to purchase more coverage within your policy. Another option is to use those dividends toward your premiums, potentially allowing the policy to fund itself. It is important to have access to multiple plans to ensure you are getting the best performance out of your whole life insurance.

Another component of whole life insurance is the cash values that builds up over time. This cash value may be available for you to withdraw or borrow against, but the death benefit will be reduced accordingly. Additionally, if your policy has a cash value and you decide to cancel your coverage, you may be entitled to some or all of that cash value.

Consider the difference between renting and owning. Term life insurance is like coverage that you rent for a specified period of time, while whole life is coverage that you own for a lifetime.

Additionally, whole life offers features that term coverage doesn’t, such as dividends for participating policies, and a cash value component that you may be able to borrow against. Whole life can be seen as an insurance policy and an emergency fund in one: imagine having to pay for emergency roof repairs, or wanting to help your child buy their first car. A whole life policy may allow you to access funds at a relatively low interest rate, but it’s important to remember that your death benefit will be reduced accordingly. You can repay these loans and borrow again in the future if the need arises.

Final Expenses

• One of the most common reasons people purchase permanent insurance

• Can cover expenses such as funeral costs, income tax bills, debt settlement

“Keep the Cottage”

• Final tax returns can often be larger than expected

• If you have assets that you’d like to pass on intact to your children, a whole life policy can help to cover those end-of-life bills so your loved ones won’t be forced to sell off your assets

Provide an Inheritance

• Because life insurance proceeds are paid out tax-free, you can ensure that your beneficiaries get the amount you want them to get

• Life insurance is the fastest way for your family to get money upon death – reap the benefits of no probate process 

Donate to Charity

• Many people want to donate to a cause that is special to them. You can give back to your community and get a tax break or return from the government at the same time. Using life insurance this way can help you connect with your values

• You can designate a registered charity as the beneficiary on your permanent life insurance policy, ensuring that the full tax-free amount is paid to the charity when you pass away

Choose a monthly or annual amount that you’re comfortable with spending (e.g. $100/month), then compare the following three areas:

1. Initial death benefit

2. Cash value over time

3. Death benefit growth over time

Different policies have different features, which can affect the growth of the policy over time. Because whole/permanent life insurance is intended to be used as a long-term financial tool, we usually focus mainly on the growth of the cash value and the death benefit. 

Insurance On Your Terms