Best whole life insurance Canada

June 29, 2022
Buying life insurance is a big decision, and it’s the right thing to do if you’re looking to protect your family. While there are many different options available, whole life insurance offers additional benefits if you want to build up your assets.

How does life insurance work in Canada?

In Canada, anyone can buy life insurance to provide financially for their family if they pass away. Individuals and couples can buy policies from insurance companies. If you have someone who is financially dependent on you, it’s a good idea to have life insurance. It provides you and your loved one’s peace of mind, knowing they’ll be taken care of if something happens to them.

Life insurance is an agreement between you and an insurance company. You agree to pay monthly premiums and if you pass away the company will pay your beneficiaries a death benefit. According to the Government of Canada, the death benefit is a tax-free, lump-sum paid to your beneficiaries. They are free to use that money to cover any expenses they have, including mortgage payments, college tuition, and even funeral costs. It can even help pay off debt.

Types of life insurance

There are many different factors involved when you decide to get life insurance, including:

Time of life

it's ideal to invest in life insurance when you’re younger, as your premiums will be lower. And with most insurance policies, your premiums will not change. Insurance companies base premiums on how risky you are to insure. So, if you’re involved in extreme sports or are a smoker, you’ll pay higher premiums.

Financial state

If you have a lot of debt, it can be a good decision to get insurance to help your family with those expenses if something happens to you. Remember the death benefit paid to your beneficiaries can be used to cover debt expenses like mortgage payments or even credit cards. Life insurance is a wise investment for anyone, but for those who have not yet built up a big nest egg, it can provide peace of mind that your family will be taken care of.

Dependents

For those who have others that are financially dependent upon them, such as kids or a spouse, life insurance can provide protection for them. If something happens to you, your loved ones will be able to use the death benefit to maintain their lifestyle.

There are two main types of life insurance. One is permanent life insurance, which is a policy that will stay with you until you pass away. The other is term life insurance, and it is only for a limited amount of time. Let’s look at the differences between the two types of insurance.

Permanent life insurance

As the name suggests, a permanent life insurance policy that covers you for your entire life. And your beneficiaries will receive the death benefit when you pass away.

An additional benefit of permanent insurance is that the policy builds up cash value for policyholders. So, if you cancel your policy at any time, you’ll be able to get your cash value back. You can also use your insurance policy as loan collateral. However, if you pass away before you repay the money, your life insurance company will take what is owing from the death benefit. In other words, your beneficiaries will get less.

There are different kinds of permanent life insurance, such as:

Whole life insurance

this policy provides a cash value, and your premiums won’t change.

Universal life insurance

with this type of life insurance, you’ll also get an investment account that has a cash value. So, you’ll be able to take out cash and loans if you need them. With universal life insurance, you’ll also be able to decide how your money is invested.

Term life insurance

With term life insurance, you’re covered for a specified amount of time, for example, 10 or 20 years. These policies are a good fit for younger individuals who have children and lots of expenses to cover.

If you pass away while your term policy is active, your beneficiaries will receive the tax-free death benefit. This insurance is also less expensive than permanent policies.

One drawback to term life insurance is that when the policy expires, you’re no longer covered. However, you can convert your term insurance policy to a permanent one before it expires. Alternatively, you can buy more life insurance if you want your coverage to continue.

Another significant difference between permanent and term policies is that term life insurance doesn’t build up cash value. If you want to be able to borrow against your policy or get cash value back if you cancel it, a term policy won’t be the right fit.

Advantages of whole life insurance policies

Whole life insurance is a more advanced insurance product than term life insurance. With whole life insurance, you’ll be able to protect your loved ones and get cash value from your investment. That’s what makes whole life insurance a solid estate planning component.

You will have lifetime coverage so you can be sure to pass your assets to future generations. Policyholders can also earn dividends from their whole life insurance company. Additionally, if you need funds for unexpected expenses that arise, you can use the cash value in your policy account.

Let’s take a closer look at the benefits of buying a whole life insurance policy:

Fixed premiums

When you buy whole life insurance your premiums will not change for the duration of your coverage. It does mean that the premiums will seem higher than other policies when you first buy whole life insurance.

But with term life insurance, policyholders need to renew their policies at the end of the term and the premiums increase each time they do. You may even be able to find a company that offers whole life insurance at set premiums for a period of time and no further premiums after that.

Investment component

Whole life insurance offers you protection for your loved ones and an opportunity to add to your investment portfolio. The insurance company will decide how to invest the money, but they will likely choose a low-risk option. This means you’ll be able to earn some extra money. Moreover, the investment income is tax-free when paid to your beneficiaries. However, it’s important to note that if you borrow from the investment income, you may be required to pay taxes.

Cash value

Separate from the insurance component of whole life insurance, your account may also offer you a cash value. And it builds as long as you hold on to your policy. The cash value component allows you to borrow against your policy. You can also surrender your policy and get the cash value. However, investment gains on the cash value may be subject to tax.

Getting the most from your whole life insurance

Buying a whole life insurance policy can be one of the best investments you make. It provides protection for your loved ones, while also acting as a saving and investing vehicle. But you’ll want to be sure that this policy is the right one for you.

For those looking for life insurance coverage for a short time, say until your kids are grown, a term life insurance policy is the best option. If you’re looking to provide for your loved ones whenever you pass away, then a whole life insurance policy is the right option.

But before you buy whole life insurance, there are some things to consider, including:

Estate planning

a whole life insurance policy can be worthwhile to have if you want to protect your assets. In Canada, if you pass away and do not have a spouse, the government will consider all your possessions to have been sold at that moment at whatever the market price was. This means your estate will need to file a tax return and pay taxes.

If you have a lot of shares or investments any gains you’ve made on these will be taxed. And your loved ones may need to sell your assets to pay the taxes. But, if you have a whole life insurance policy, it can protect your family from having to do that by providing a death benefit.

Investment

having a cash value building alongside your life insurance provides you with an extra way to get money if you need it. You can borrow from the account, which saves you from having to apply for a credit line or loan.

Types of dividends with whole life insurance

Earning dividends is an additional benefit you get from whole life insurance. While the types of dividends you can get differ from company to company plans like the one offered by RBC Insurance give you five options, including:

Premium reduction

wouldn’t it be nice not to have to pay life insurance premiums for the next 12 months? With the premium reduction option, you can use the dividends to cover your premiums. If the dividends exceed what you’re required to pay in premiums the rest will be given to you in cash.

Paid-up additions

with this option, you can use your dividends to get more life insurance. This means you’ll get more coverage to offer your beneficiaries and you’ll be able to earn more dividends in the future on the additional life insurance you’ve purchased. Moreover, the extra life insurance will contribute to a larger cash value account.

Cash

You can opt to take the dividend funds out in cash each year. However, you may be taxed on this money.

Dividend account

consider having the dividends directly deposited into an account so you can earn interest on it. You’ll be able to take money out from this account at any time.

Enhanced insurance

this option allows you to use the dividend funds as paid-up additions and a year’s worth of premium payments. Not only will you not have to pay your monthly premiums for life insurance for another year, but you’ll also be able to earn future dividends on the extra life insurance. And your cash value account will grow.

Best whole life insurance in Canada

There are many life insurance companies in Canada that offer great whole life insurance coverage. The best whole life insurance is the one that fits your lifestyle and needs. Here are some of the most notable life insurance companies in the country:

Assumption Life

Offering a variety of insurance products, Assumption life insurance is flexible and the application process is simple and fast.

BMO Life Assurance Company

Whole life insurance with BMO is an affordable option and you can even get a multi-policy discount if you purchase other insurance products from them.

Canada Protection Plan

Canada Protection Plan has several life insurance options available and their applications are done online. The drawback is that coverage will end when you hit 80.

Sun Life Financial

Offering simple and easy-to-understand life insurance policies, Sun Life Financial is considered one of the biggest life insurance providers in Canada.

Agent providing insurance cover to a young couple

What to look for in a life insurance company

It’s important to carefully investigate the life insurance company you buy a policy from as you’ll be paying them for years to come. You want to find a company that you’re comfortable with and you feel will provide you with the best coverage and care for your beneficiaries.

Here are some things to look for when choosing a life insurance company:

Cost

As with most things, cheaper isn’t always better when looking for life insurance coverage. You want to find a policy that provides you and your loved ones the best coverage at the lowest possible cost.

Approval

What is involved in the approval process and how long will it take? Some life insurance policies require you to take a medical exam. You may also have a waiting period before your coverage kicks in. It’s essential to be clear on the details of your policy so there are no surprises.

Trust

What do others have to say about the insurance company? You can see online customer reviews, check out the insurance company’s rank on the BBB, etc. Are they a company that seems easy to work with? You’ll also want to know who is backing them so you can be sure they have enough resources to pay claims made.

Coverage

Is there a limit to how much coverage you can buy? While you may not be interested in large death benefit payouts at this point, you may want to buy more coverage in the future.

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