When it comes to life insurance, there are many options available – so many, in fact, that it can be an intimidating process to undertake. Many clients are overwhelmed, or unsure about which option is best in terms of cost, coverage and meeting their goals. That said, insurance can be simplified by dividing it into two broad categories: permanent and term. 

Each of these insurance categories has multiple variations.  The chart below is intended to provide clarity and relieve some of the anxiety associated with choosing the most appropriate insurance option for your situation. If you have questions about insurance options and what would best suit your needs and goals, please contact my team – we’d be pleased to answer your questions!

What you need to know

­­PermanentTerm 100Term
Policy TypeWhole LifeUniversal Life 
  Period of Coverage  Life  Life  To age 100Stated in the contract (i.e. 5, 10, 20 years) Often renewable for additional terms but expires at age 80.
    Premium  Guaranteed. Usually remain level.  Flexible. Can be increased or decreased by policyholder within certain limits.  Guaranteed. Usually remain level.  Guaranteed and remain level for term of policy, Increase with each new term.
­­ Death BenefitsGuaranteed Remain level. Dividends can enhance death benefits in participating policies.Flexible. May increase or decrease according to fluctuations in cash value fund.  Guaranteed. Remain level.  Guaranteed in contract.
    Cash Values    Guaranteed in contract.Flexible. May increase or decrease according to investment returns and level of policyholder deposits.Usually none. (Some policies have a small cash value or other non-forfeiture value after a long period, i.e. 20 years.)  Usually none. (Some long-term policies have a small cash value or other non-forfeiture value.)
Non-forfeiture OptionsGuaranteed in contract.Guaranteed in contract.See above.See above.
    Dividends  Payable on “participating” policies. Not guaranteed.  Most policies are “non-participating” and do not pay dividends.  Most policies are “non-participating” and do not pay dividends    Most policies are “non-participating” and do not pay dividends
(source: Canadian Life and Health Insurance Association 2016)

Advantages of Permanent

  • Provides protection for your entire lifetime.
  • Premium cost usually stays level.
  • Has cash values that can be borrowed, and used to cover missed premiums, or withdrawn if the policy is no longer required.
  • Other options allow the policyholder various possibilities of continuing coverage if premiums are missed or discontinued.
  • If the policy is participating, it receives dividends that can be taken in cash, left to accumulate at interest, or used to purchase additional insurance.

Disadvantages of Permanent

  • Initial cost may be too high for enough protection for your current needs.
  • May not be an efficient means of covering short term needs.
  • Cash values tend to be small in the early years. You must hold the policy for a long time (10 + years), before the cash values become sizable.

Advantages of Term 100

  • Provides protection to age 100 – if kept in force.
  • Premium cost usually stays level, regardless of age or health problems.
  • Premium cost is lower relative to traditional permanent policies.

Disadvantages of Term 100

  • Usually, no cash values and no or limited non-forfeiture values.

Advantages of Term

  • Suitable for short term insurance needs, or specific liabilities like a mortgage.
  • Provides more immediate protection because, initially, it is less expensive than permanent insurance.
  • Can be converted to permanent insurance without medical evidence (if it has a convertibility option) but will expire at age 80.

Disadvantages of Term

  • If renewed, premiums increase with age and at some point, higher premium costs may make it difficult or impossible to continue coverage.
  • Renewability of coverage will terminate at age 80.
  • If premium is not paid, the policy terminates after 30 days and may not be reinstated if health is poor.
  • Usually, no cash values and no non-forfeiture options.

Have the following questions prepared when meeting with your advisor over this decision

  • How much insurance coverage do I need? 
  • What type do I need? Should I have term or whole life? 
  • If I am buying term, what term is appropriate for me? Ten years, 20 years, or life? 
  • If I am buying term insurance, is it convertible to permanent insurance? 

The Bottom Line

As much as we can simplify insurance by using charts and lists to illustrate the differences between each option, it is very important to go over your needs with an expert.  A wealth advisor will ask the right questions and identify the appropriate course of action. Relying on general feedback from friends and family can lead to problems as your future needs and current situation can and likely vary from theirs. Again, if you’d like to arrange a consultation regarding your insurance or wealth management needs, please reach out to our team.

Insurance products and services are provided through Davison & Orser Financial Advisors. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see a professional advisor for individual financial advice based on your personal circumstances.