Most families need life insurance for a specific stretch of time: while children are growing up and the mortgage is being paid. Some needs last a lifetime. Matching the type of coverage to the length of the need is the key decision.
Term insurance
- Covers a set period, commonly 10, 20 or 30 years, with level premiums.
- Has no cash value, which is why it offers the most coverage per premium dollar.
- Can usually be renewed at higher rates, and converted to permanent coverage without a new medical, typically until about age 70 or 71.
Permanent insurance
- Term to 100: lifelong coverage with level premiums and little or no cash value.
- Whole life: guaranteed premiums and cash values; participating policies may also pay dividends, which are not guaranteed.
- Universal life: flexible premiums with an investment account inside the policy that grows tax-deferred within federal limits.
How to decide
- Raising children or paying a mortgage? Term usually fits: pick a term that outlasts the need.
- Want to leave a legacy, cover final expenses or fund a trust for a dependant with a disability? Permanent coverage is designed for needs that never expire.
- Many families combine them: a large term policy for the busy years, plus a smaller permanent policy for life.
Don't forget the conversion privilege
If your health changes, the right to convert term to permanent coverage without medical evidence can be extremely valuable. Note your deadline; it usually arrives before the term ends.
Estimate your need with our life insurance calculator.
Sources: RBC Insurance term product details; Canadian insurer conversion provisions; CLHIA.
This article is general information, current as of its publication date, and is not personal financial, tax or legal advice.