Term vs Whole Life Insurance: How are They Different? (2023)

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Patrik Shore updated on 7 November 2023

Life insurance is one of those products that you know you need but don’t want to think about buying. It doesn’t get easier when you realize that there are a variety of life insurance products to choose from and limited information adequately explaining their differences.

It won’t take you long to realize that the two most common types of life insurance are term life insurance and whole life insurance. But what is whole life insurance versus term life? And, what is the difference between term and whole life insurance?

This article gives you the ultimate comparison between whole life insurance vs term life insurance and helps you decide which policy will suit you best.

Term vs whole life insurance: what are the differences?

Term life insurance and whole life insurance are the two most common types of life insurance in Canada. They are popular is because they are the easiest to understand and most cost-effective products available when compared to other more complex life insurance plans like universal life.

In order to effectively compare term life insurance vs whole life insurance, we need to know what each type of life insurance offers on a standalone basis. Let's take a look.

The table below highlights most of the key features of both term and whole-life insurance:

Term Life Insurance

  • Lasts only for specific term lengths
  • Policies expire at the end of the term but can sometimes be renewed with recalculated premiums
  • Does not accrue a cash value or any other investment type benefit
  • Fixed death benefit
  • Affordable and guaranteed premiums

Whole Life Insurance

  • Lasts for the policyholder’s entire life
  • Premiums are usually only payable up to the age of 100, but coverage continues for life
  • Can build up a cash value through guaranteed interest payments
  • Fixed death benefit
  • More expensive but still guaranteed premiums

What is term life insurance?

Term life insurance is the most basic form of life insurance available. It provides the beneficiaries of the policyholder with a lump sum payout should the life insurance holder pass away.

The ‘term’ aspect of term life insurance refers to how long the life insurance policy will last. Most insurance companies offer fixed terms such as 5, 10, 20 or 30-year term life insurance plans, but some insurance providers will let you choose a specific length of time such as 17 years.

Since term life insurance is extremely basic it is also the cheapest form of life insurance coverage available. The premiums will commonly remain the same for the full term and the policy will expire if the insured outlives the term length. Some insurers offer renewable term life insurance without the need for new medical underwriting, but the premiums will be recalculated.

What is whole life insurance?

Whole life insurance is a policy that will provide the insured with life insurance coverage for their entire life as long as the premiums are paid. Similar to term life, whole life insurance premiums remain the same throughout the whole policy, with most premiums ceasing at the age of 100 but coverage continuing without further premiums having to be paid.

Since whole life insurance offers lifelong cover, the policyholder will remain covered with the same premiums regardless of any changes in their health. Due to this, whole life insurance is more expensive than term life insurance, but for many, the guaranteed life cover is worth the additional cost.

Whole life insurance falls under the category of permanent life insurance which also includes universal life and variable life insurance.

Expert advice

Wondering about the difference between whole and permanent life insurance? They are two terms that mean largely the same thing. Whole life insurance, along with universal and participating life insurance, is a category within the broader permanent life insurance umbrella. Some companies may refer to the permanent life policies and others their whole life policies. All of these names represent coverage for life.

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Ho do term and whole life insurance costs compare?

There is a large discrepancy in cost between term life insurance vs whole life insurance because a policyholder may outlive the length of the term life insurance without receiving a payout, whereas the insurer is all but guaranteed to pay out on a whole life insurance policy. This makes term life insurance cheaper than whole life insurance.

The table below shows the potential costs of a 20-year term life insurance policy and a whole life insurance policy for healthy, non-smoking Canadian residents with a death benefit of $250,000. It shows how whole life policies can cost many multiples of their term life counterparts.

Age20-year Term Life Insurance
20-year Term Life Insurance
Whole Life Insurance (Female)Whole Life Insurance (Male)
Cost comparison between term and whole life insurance.

How to choose between whole and term life insurance?

When deciding between term or whole life insurance it is important to consider where you are in life and why you are in the market for life insurance. This is because the type of life insurance policy that will be most suitable to you is often linked to your specific needs.

For example, if your sole focus is to ensure that your mortgage is covered if you pass away unexpectedly then you don’t need to spend the money on a whole life policy. On the flip side, a whole life policy may be more suitable if you want to leave a legacy for your children and grandchildren.

Aspects in your personal life that influence which life insurance policy you should buy include:

  • Age
  • Marital situation
  • Dependents (if any)
  • Financial situation
  • Income
  • If you own property
  • How far along you are in your career
  • Employment stability

When to choose term life or whole life insurance?

Due to the various variables that can influence whether you should choose term life or whole life insurance, it is never easy to find a simplified source of information or recommendation. The table below can be used as a checklist to help you decide when to choose term life or whole life insurance depending on your specific situation.

Your Personal SituationTerm Life InsuranceWhole Life Insurance
Low to mid-income household
Limited financial responsibilities
No or few dependents
Mid to high-income
Several financial responsibilities (incl. mortgage, childcare, tuition etc.)
Specifically wanting to leave a legacy for heirs
Unstable employment
Stable employment
Individuals in need of flexibility
Mature individuals looking to protect their estate
Looking to include life insurance as part of a long-term financial plan
Small business owners
Suitability of a term life insurance vs whole life insurance plan

Term vs whole life insurance: what are the pros and cons?

When reviewing the differences between term and whole life insurance it is easy to simply ask the question — which is better: whole life or term life insurance? Unfortunately, there is no easy answer since the decision is based on many personal factors as you have seen above.

However, even if we know when we may choose one policy over another from our personal situation we still need to know why a term life or whole life insurance policy is more suitable and what their specific drawbacks may be. Listed below are several pros and cons for both term life and whole life insurance to further highlight their differences.

Advantages of term life insurance

  • Affordable
  • Flexible
  • Guaranteed coverage
  • Guaranteed premiums
  • Easy to understand
  • Great as a standalone product without investment

Disadvantages of term life insurance

  • Coverage is limited to the term of the policy
  • Premiums increase if the policy is renewed
  • Does not build up a cash value
  • No payout when the policy term ends

Advantages of whole life insurance

  • Lifelong coverage
  • Guaranteed death benefit
  • Guaranteed premiums
  • Can gain cash value
  • Can include an investment aspect
  • Dividend payments may be received

Disadvantages of whole life insurance

  • Expensive compared to term life
  • More to lose if premiums can’t be maintained
  • More complex product and harder to understand

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How to convert term life to whole life insurance?

One of the main advantages of a term life insurance plan is that it is sometimes possible to convert the policy into whole life insurance. The benefit converting term life insurance to whole life insurance is that you can buy affordable term life when you are younger and then upgrade to whole life insurance later in life without any new medical tests or health declarations.

However, converting term life insurance into whole life insurance can only be done if you bought your term life insurance policy with an insurance provider that offers the upgrade as a benefit. You may also have to fulfill certain other criteria in order to change the policy such as applying for the upgrade before a specific age.

A non-exhaustive list of life insurance providers in Canada that allow you to convert your term life insurance to whole life insurance can be seen below.

  • Manulife life insurance
  • RBC life insurance
  • Empire Life insurance
  • Canada Life insurance
  • Sun Life life insurance
  • BMO life insurance
  • Ivari Life insurance
  • Desjardins life insurance
  • CIBC life insurance

What is the difference between term 100 vs whole life insurance?

A Term 100 life insurance policy, aka T100, is similar to whole life insurance as both insurance products guarantee lifetime cover. Since both are permanent life insurance policies you will also not have to worry about your premium increasing or coverage changing throughout the policy term.

However, unlike whole life insurance, Term 100 life insurance does not accrue a cash value, provide the policyholder with dividend payments, nor does the T100 plan have a cash-out option. This makes a T100 policy cheaper than whole life insurance and easier to understand.

Term 100 life insurance policies are perfect for individuals looking for the simplicity of term life insurance but with the guaranteed lifetime coverage offered by whole life insurance policies.

How to cancel term life insurance vs whole life insurance ?

Cancelling a life insurance policy is incredibly easy. In most cases, you can cancel your plan by simply not paying the premiums. There is, however, a slight difference between term life vs whole life insurance when it comes to cancellations.

When cancelling a term life policy all you normally have to do is write a letter of cancellation to your insurance provider and stop premium payments. Since term life insurance does not provide the insured with a cash value, the insurance policy will simply cease to be in effect.

Cancelling a whole life insurance policy can be slightly more complex since the policy accrues a cash value component and may also come with a surrender fee. This means that while the policy's cash value may give the policyholder a payout upon cancellation, the surrender fee will often decrease the payout significantly if the policy is terminated soon after inception. The surrender fee usually decreases significantly after 5 or 10 years, so it is important to consider this charge when comparing whole life insurance options. It is always best to contact your whole life insurance provider before ceasing premium payments as you may be entitled to a cash value redemption.

Who should pick term life insurance?

Term life insurance is perfect for young individuals looking for guaranteed coverage at an affordable price. It is ideal when you want coverage for a mortgage or other life expenses that you don’t want your dependents to have to fight to pay in case you pass away unexpectedly.

Who should pick whole life insurance?

Whole life insurance is the perfect insurance plan for anyone planning for their long-term financial future and can afford a higher premium. It is a good estate planning and inheritance preservation tool which can guarantee that an amount of money will pass to your heirs after you pass away. It is more suitable for mature individuals with little debt and stable incomes.

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Patrik Shore Ex: web developer

Patrik Shore has nearly a decade worth of experience in the financial industry and has been writing for HelloSafe over the past year. Having started his career investigating financial crime to moving on to financial planning, Patrik has a deep understanding of all things personal finance.

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