Term vs Whole Life Insurance?

Term life insurance covers you for a set period, while whole life insurance is designed to cover you for life and usually builds cash value. Term generally costs less at the start. The choice depends on how long you need protection and what you can afford to keep.

Whole life is a type of permanent life insurance, not a synonym for every permanent policy. Other permanent products work differently. Emma's Term 100 (T100), for example, is permanent insurance without cash surrender value, not a cash-value whole life policy.

Which is better, term or whole life insurance?

Term can suit temporary needs, such as replacing income while children depend on you or covering a mortgage. Whole life can suit a lasting need, such as leaving an inheritance or covering final expenses. Neither is automatically better: compare the duration, coverage amount and premiums you can sustain.

Before you purchase life insurance, here are 5 questions to ask yourself to further clarify your insurance needs.

• What coverage can you afford?
• Who depends on you financially and for how long?
• How long do you expect to be in debt? (Mortgage, student debt)
• How much would the funeral arrangements cost if I died?
• How much extra money would I want to leave my beneficiaries?

Emma T100 is a separate permanent option without cash surrender value. Do not assume the whole-life cash-value column describes it. For any policy, a death benefit is payable only for a covered claim under the contract.

Term Life Insurance

Term life insurance covers a set number of years. If you die while coverage is in force and the claim meets the policy terms, the insurer pays the death benefit to your beneficiaries. Some policies let you convert to permanent insurance within specified limits.

Coverage lasts for the period stated in your contract, provided you meet its conditions, including required premium payments.

Choose a term that matches how long you expect to need protection. If you still need coverage later, review renewal and conversion options before their deadlines; a new application may be assessed at your age and health at that time.

Advantages and Disadvantages of Term Life Insurance

Advantages

• Term life insurance is easy to understand.
• Premiums are generally lower initially than whole life premiums for comparable coverage.
• You can choose a coverage period that matches a temporary need.

Disadvantages

• Coverage ends at the policy's expiry date. If renewal is available, premiums generally rise at renewal, even if your health has not changed. Check the renewal schedule and final expiry age in your contract.

Whole life insurance

Whole life is permanent coverage designed to last your lifetime, subject to the policy terms. Premiums are usually fixed for the required payment period, and policies usually provide a cash surrender value.

The cash surrender value is the amount available if you cancel the policy. Its guarantees and growth depend on the contract; it is not simply a savings account paying a standard interest rate.

Participating whole life policies may also pay dividends. These dividends are not guaranteed and should be distinguished from the policy's guaranteed values.

Permanent coverage does not always include cash value. Emma's T100 has no cash surrender value and is not the whole life product described here. Compare the specific policy, not just the word “permanent.”

Advantages and Disadvantages of Whole Life Insurance

Advantages

• Coverage is designed to last for life if the policy remains in force.
• Cash surrender value can provide options later, subject to the contract.

Disadvantages

• Premiums are generally higher initially than term premiums for comparable coverage.
• The required payments must fit your budget over the long term.
• Cancelling early or borrowing against the policy can reduce its value or benefits.
• Cash-value features and non-guaranteed dividends require careful comparison.

Cost differentiation between term and whole life insurance

Term life generally has lower initial premiums than whole life for the same insured person and coverage amount. Compare quotes using the same death benefit, then check the payment period, renewal costs and guaranteed cash values. A lower initial premium does not establish which policy costs less over your lifetime.

The main differences between term and whole life insurance

What happens when term coverage ends?

Whole life is designed for lifelong protection. Term coverage lasts for the period in the contract. At the end of an initial term, a renewable policy may continue at a higher premium until its final expiry date.

Your need for insurance does not automatically end after a particular number of years. Reassess your debts, dependants, savings and any lifelong needs before reducing or ending coverage.

Renewal and conversion are different options. Renewal keeps term coverage; conversion changes it to an eligible permanent policy. Conversion rights, deadlines and coverage limits depend on your contract, so do not assume you can wait until the term ends.

Payout in the event of death

Both types provide a death benefit for a covered claim while the policy is in force. Payment depends on the contract, including its exclusions and conditions. Term insurance does not pay a death benefit simply because you reach the end of the term.

Cash surrender value

Whole life policies usually build cash surrender value; term life does not. This feature is not shared by every permanent policy: Emma's T100 has no cash surrender value.

Cash surrender value is the amount you can receive if you cancel a policy that offers it. Check the contract for the values available over time and any charges.

Depending on the contract, you may be able to borrow against that value or use the policy as collateral for a loan. Borrowing is not the same as a withdrawal: a policy loan accrues interest, and an unpaid balance can reduce the death benefit.

Accessing cash value can affect coverage and may have tax consequences. Before proceeding, ask the insurer to explain the available options, costs and effect on your policy.

Insurance Premiums

Whole life premiums are usually fixed for the payment period stated in the contract. Do not assume every type of permanent insurance uses the same premium structure.

A level-premium term policy keeps the same premium during the selected term. If you renew, the renewal premium is generally higher. Check the schedule rather than relying only on the first premium quoted.

Compare how long premiums must be paid and how long coverage lasts. These periods are not necessarily the same.

One family, two different timelines

Illustrative scenario, not a customer story or an insurance quote.

Priya and Marc are paying a mortgage and raising children. Priya wants her family to be able to keep meeting those expenses if she dies while they depend on her income. She also has a separate goal: leaving an inheritance even after the mortgage is paid and the children are independent.

The first need has a timeline, so she compares term coverage that fits it. The inheritance goal may last for life, so she also asks about permanent coverage and whether its ongoing cost fits the household budget.

If a quote includes Emma T100, Priya knows not to expect cash surrender value. If it includes a cash-value whole life policy, she asks which values are guaranteed. Separating the two goals helps her compare the actual contracts instead of treating every permanent policy as the same product.

The best of both worlds

You may have both temporary and lifelong insurance needs. Combining term and permanent coverage can be an option, but it is not automatically the best fit for everyone.

For example, term insurance could cover a mortgage while permanent coverage addresses a lasting need. Whether these can be combined in one policy depends on the products offered. Come chat with one of our experts to find out how to get the most out of both products!

Important insurance definitions

There are quite a few differences between term life insurance and permanent life insurance, but some terms are found in both types of coverage. Regardless of the insurance product you choose, here are some commonly used insurance terms. For even more definitions, see our comprehensive glossary of financial terms.

Policyholder: The person who owns the life insurance policy.

Insured: The person whose life is covered. Often the policyholder.

Premium: The amount paid, usually monthly or annually, to keep the insurance in force.

Beneficiary: The person or people designated to receive the death benefit for a covered claim. Our guide to life insurance beneficiary rules in Canada explains how to name and change one.

Death Benefit: Amount of money paid to the beneficiaries in the event of the death of the insured.

Riders: Additional coverage that you can add to your insurance policy for an additional fee.

Underwriting: The process by which the insurer evaluates the risk of insuring you, the coverages for which you are eligible and the resulting premium rates.