How does whole life insurance work in Canada?
In Canada, a whole life insurance policy offers three important guarantees in exchange for monthly or annual premiums: coverage that won’t expire, fixed premiums and a guaranteed death benefit to your beneficiaries.
The amount of money your beneficiaries receive depends on how much life insurance coverage you buy.
Some whole life insurance policies also include a savings portion called the cash value. Savings can grow over time on a tax-preferred basis, meaning you won’t have to pay tax on any cash-value growth.
Whole life insurance cash value
Part of each premium payment goes towards your policy’s cash value. You can access the cash value later in life by taking a loan against the cash value or by taking a partial withdrawal from your policy. This is helpful for peace of mind, knowing that you have extra funds. These funds can be used for anything, like unexpected expenses or to supplement your income.
Borrowing against your policy’s cash value
When you borrow against your policy’s cash value, you’ll be charged interest. But rates are typically lower than taking a personal loan or home equity loan.
Unpaid loans also reduce the cash value of the policy or, depending on your policy, can reduce the final death benefit of your policy. There may be additional tax implications from borrowing against your policy’s cash value.
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Withdrawals or surrendering your policy
Withdrawing money from your policy is also known as a partial cash surrender. Partial cash surrenders will reduce the final death benefit of your policy.
You can also surrender the whole policy to receive the entire available cash value (less some fees). However, this cancels your policy, and the death benefit will no longer be available to your beneficiaries.