Coverage Types, Price Factors and 2026 Rules
Term vs permanent life insurance in Canada: which one fits your need
Term 10, 20, 30, term to 100, whole life and universal life compared: how each works in Canada, what it costs relative to term, and a decision checklist.
Choose term life insurance when the need has an end date: a mortgage that will be paid off, children who will become independent, income your spouse needs until your retirement. Choose permanent life insurance when the need lasts for life: taxes your estate will owe on a cottage or RRIF, a dependant with a lifelong disability, a business buy-sell agreement, or a deliberate plan to leave a set amount. For the same face amount, permanent coverage typically costs several times more than a 20-year term at the start, so most young families cover most of their need with term and add permanent coverage only for the part that never goes away.
This guide belongs to the life and disability insurance overview.
The main policy types sold in Canada
| Type | How long it lasts | Premium pattern | Cash value | Typical use |
|---|---|---|---|---|
| Term 10 | 10 years, often renewable | Level for 10 years, then jumps at each renewal | None | Short needs, bridging, tight budget |
| Term 20 | 20 years, often renewable | Level for 20 years | None | Mortgage and children's dependent years |
| Term 30 | 30 years | Level for 30 years | None | Young parents who want one policy to retirement |
| Term to 100 (T100) | For life | Level, often stops at 100 | Usually none | Lifelong need without savings feature |
| Whole life (participating) | For life | Level, sometimes paid up after 10 or 20 years | Guaranteed values plus dividends that are not guaranteed | Estate planning, forced savings, business uses |
| Whole life (non-participating) | For life | Level | Guaranteed values | Lifelong need with fixed costs |
| Universal life | For life if funded | Flexible within limits | Depends on deposits, cost-of-insurance option and investment returns | Flexible lifelong coverage, tax-sheltered growth |
Term policies sold in Canada usually include a renewal right (you can renew without new medical evidence, at a much higher premium shown in the policy's table) and often a conversion right (you can switch to a permanent policy without medical evidence until a stated age, often around 65 or 70). Both rights are valuable if your health changes; check the exact ages in the contract.
How the prices compare
The figures below are illustrative and only show proportions; real quotes depend on age, sex, health, tobacco use and the insurer. For a healthy 35-year-old non-smoker buying $500,000:
| Policy | Illustrative monthly premium | Paid over 20 years |
|---|---|---|
| Term 20 | $35 | $8,400 |
| Term 30 | $55 | $13,200 |
| Term to 100 | $250 | $60,000 |
| Participating whole life, paid to 100 | $450 | $108,000 |
The term policy is cheaper because it will most likely expire without paying a claim. A permanent policy is priced to pay out eventually, because everyone dies, and it pre-funds that cost in the early years. The individual factors that move any of these prices are explained in life insurance premium factors. And if your real worry is getting sick rather than dying, no life policy helps while you are alive; that is the job of disability insurance.
When permanent coverage is the better answer
- Estate tax. At death, a person is deemed to dispose of capital property, such as a cottage or a non-registered portfolio, and the RRSP or RRIF is generally fully taxable unless rolled over to a spouse. A lifelong policy can provide cash to pay that tax so heirs do not have to sell.
- A dependant who will never be independent. For example, an adult child with a disability. A Henson trust or RDSP plan is often combined with insurance; this needs legal advice.
- Business needs. Funding a shareholder buy-sell agreement or a corporate-owned policy, which has specific tax rules through the capital dividend account. Speak with an accountant.
- You want guaranteed lifelong coverage and have maximized your TFSA and RRSP. Some people value the tax-sheltered growth of a participating policy as part of a conservative plan.
When term is usually enough
- Your main concerns are paying off a mortgage and replacing income until the children finish school.
- You have a tight budget: underinsuring with permanent coverage is a worse outcome than fully insuring with term.
- You expect your savings to grow so that you will be self-insured by your 60s.
Combining the two
A common structure is to cover the large temporary need with term and a smaller lifelong need with permanent coverage. Illustrative example: a couple needs $900,000 today, of which about $150,000 is a lifelong estate tax need. They buy a $750,000 Term 20 and a $150,000 term to 100 or whole life policy. Total cost is far below insuring the full $900,000 permanently. See term length and laddering for how to split the temporary part across policies that end at different times.
Decision checklist
- Write down each need and when it ends (mortgage payoff year, youngest child's 22nd birthday, retirement date).
- Total the needs that end, and separately the needs that last for life.
- Quote term for the first total and permanent for the second.
- Check that the term policy is renewable and convertible, and to what age.
- If a permanent policy is proposed, ask for the guaranteed values separately from the illustrated (non-guaranteed) values.
- Ask what happens if you stop paying in year 3, 10 and 20: surrender value, reduced paid-up option, lapse.
- Test the "invest the difference" alternative with the term vs permanent projection and the detailed comparison.
Frequently asked questions
Can I convert term to permanent later?
Usually, if the policy has a conversion privilege and you are below the conversion age stated in the contract. The new premium is based on your age at conversion but not on your health then, which is why the right matters if you become ill.
Are universal life policies investments?
They combine insurance with a tax-sheltered account. The account value depends on the investment options and the cost of insurance deducted, and growth is not guaranteed unless the option is guaranteed. Exempt-policy rules in the Income Tax Act limit how much can be deposited.
Do I get money back if I outlive term insurance?
No, unless you bought a return-of-premium rider, which adds significant cost.
Who should advise me on permanent insurance?
A licensed life insurance advisor, ideally one who will explain the guaranteed figures, and for estate or corporate uses, an accountant or tax lawyer.
Sources
- Financial Consumer Agency of Canada — consumer information on life insurance
- Canadian Life and Health Insurance Association — guide to life insurance types
- Canada Revenue Agency — tax on death and deemed disposition
- Autorité des marchés financiers — Quebec advisor register and consumer guides
