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Insuring your life

August 22, 2017

What type of life insurance do you need?

You know you need life insurance, but what type? Comparing the main kinds of life insurance can help you make the choice that’s best for you.

Picture this: You and your spouse have just bought your first home together, a condo featuring 2 bedrooms, 1½ baths and a mortgage that makes your eyes water. Or this: You and your best friend have both plunged all your savings into a new business, and you’re working 18-hour days to get it off the ground. Or this: You hadn’t exactly planned it for right now, but you and your partner are expecting a baby in 6 months. What’s the common thread here, besides excitement, joy and more than a little trepidation? It’s responsibility: Someone else — your spouse, your partner, your child — is depending on you for their financial survival.

With that great responsibility comes great power: the power to safeguard the people who depend on you, with life insurance. In simple terms, life insurance helps to protect the financial security of the people you love by paying them a tax-free cash benefit when you die. Although you won’t be around to reap the benefits, it’s up to you to make sure you have not only enough insurance, but also the right type of insurance, to adequately protect everyone who’s depending on you.

There’s no “one-size-fits-all” type of life insurance. The kind your parents have, or that your brother-in-law just bought, may not be the best kind for you. You need to look at your personal needs and current situation, the stage of life you’re at, and what you can afford. (The cost of life insurance can vary based on your age, sex, health, lifestyle and medical history.) And the best solution could even be more than one type.

Compare the 4 main types of life insurance — term, permanent, participating and universal (the last 2 of which are actually forms of permanent life insurance) — in the table below:

Comparing life insurance
Product features Term life insurance Permanent life insurance Participating life insurance Universal life insurance
What it gives you

Temporary, renewable and flexible protection from the financial impact of your death, for those who depend on you

The flexibility to convert to permanent, participating, or universal life insurance in the future

Lifelong protection from the financial impact of your death

Opportunity for tax-preferred cash value growth

Guaranteed lifetime protection

Opportunity for tax-preferred cash value and death benefit growth

Policies are eligible to receive dividends, which you can use to increase your coverage or reduce your premiums, leave on deposit to earn interest, or take as cash.

Guaranteed lifetime protection combined with tax-deferred investment options

Opportunity for tax-preferred cash value and death benefit growth

When it pays

If you die before expiry

Whenever you die, with no time limit

Whenever you die, with no time limit  

Whenever you die, with no time limit

How it pays

Your beneficiaries receive a tax-free cash payment.

Your beneficiaries receive a tax-free cash payment.

Your beneficiaries receive a tax-free cash payment.

Your beneficiaries receive a tax-free cash payment.

How you pay for it

Tends to be a less costly option.

The cost won’t increase for the length of the term, but will increase if you renew your coverage at the end of the term.

Costs are guaranteed for life when you first purchase the policy.

Some plans allow you to pay for a guaranteed number of years, and then never again.

Costs are guaranteed for life when you first purchase the policy.

Some plans allow you to pay for a guaranteed number of years, and then never again.

You choose how much you want to pay, as long as it’s enough to keep the policy in force. Any amount over and above the cost of insurance is deposited into a tax-preferred account invested based on the options you select.

It’s for you if…

You have a young family and/or a mortgage.

You’re looking for the most affordable option.

You’re a business owner who needs protection for a limited time.

You’re looking for affordable lifetime coverage with a guaranteed death benefit.

You like the idea of guaranteed cash value and premiums that won’t increase.

You want a guaranteed amount of coverage along with a guaranteed cost.

You want the opportunity to increase your death benefit over time to keep up with inflation.

You’ve maximized your RRSP and TFSA contributions and are looking for a tax-efficient strategy to grow your non-registered investments.

You prefer a hands-off approach to your investments.

You’re a business owner searching for tax-efficient ways to protect your business value.

You want flexible lifetime insurance coverage with the opportunity for tax preferred savings.

You’ve maximized your RRSP and TFSA contributions and are looking for a tax-efficient strategy to grow your non-registered investments

You prefer a hands-on approach to your investments.

You’re a business owner searching for tax-efficient ways to protect your business value.

Learn more:

About term life insurance

About permanent life insurance

About participating life insurance

About universal life insurance

Comparing life insurance  

Insuring your life is one of the wisest and most unselfish moves you can make. For help understanding all the implications when considering your options, talk to an advisor.

Need help getting started? Try our Bright Start tool.

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