Term Vs. Whole Life Insurance (Life Insurance in Canada Explained)

There's two types of people that buy life insurance, those that need it and those that use it. And I thought that was a really great way to really give you insight as to who's using these products and how. So the other thing I wanted to share with you is that one thing I've learned over time is nothing delivers cash or liquidity when it's most needed, like life insurance.

Hi, my name is Dan Allen and today I just wanted to talk to you about the differences between whole life insurance and term insurance. So to start with, I just thought I'd talk about a couple things related to life insurance. And I heard it recently stated that there's two types of people that buy life insurance, those that need it and those that use it. And I thought that was a really great way to really give you insight as to who's using these products and how. So the other thing I wanted to share with you is that one thing I've learned over time is nothing delivers cash or liquidity when it's most needed, like life insurance. So with that, let's just talk about the difference between whole life and term insurance. And I thought I'd start by talking about term insurance. So like the name mentioned, it is an insurance that you buy and it will provide death benefit and the premiums you pay will be for a term, and that policy will be in place for a term.

Now let's just talk about, there's a bunch of different terms that are available. So you can get term 10, term 20, term 30, and it goes on. So there's lots of options for you. And what does it mean if you get a. For example, let's talk about a term 10. So for a term 10, whatever the death benefit it is that you have bought the insurance for, it will have a premium that you have to pay for those 10 years. So let's just say it was, know, $1,000 a year. Well, it would be $1,000 a year for 10 years. That would be how you pay for your term insurance. Now as that term comes to an end, most life companies will give you the option to extend it to the next term, another term 10, and the premium will go up because you've aged. So with term insurance, each time you go to a different term, the premium goes up and up and as you get older, so when you get into your 70s and 80s, the cost of insurance goes way up because the life company knows that the probability of you passing away during that term goes up more as you age. So term insurance is really cheap to buy when you're young because the probabilities of you passing away are low. And the life companies know something that it's less than 3% of term insurance that ever pays out a death benefit. So they can offer term insurance very economically based on what they know, based on life expectancies and they will underwrite you so they know they're not taking huge risks that aren't at least been considered. So that's the thing about term insurance and there's a few other things. Always encourage people. When you buy term insurance, buy it with a company that allows it to be convertible. And what do I mean by convertible? That means that you get the option to convert that term insurance to permanent insurance. And that is a huge plus. That's one of the things I like the most about term insurance is that once you have that insurance on your life and you do it with a life company that allows you to convert it, you have guaranteed insurability. What do I mean by guaranteed insurability? Well, you have a guarantee in place that any point of up to a certain age. In most life companies it's 71. After that, they don't allow you to convert it. You can convert that to a permanent product. Now, if you happen to get sick at some point where your health wouldn't allow you to purchase permanent insurance, having this in place allows you to do and put that insurance on in a permanent manner without going to have to prove insurability. It's just a huge benefit that you can get from the right term insurance. And like I said, I would really encourage you to make sure you're doing it with a life company that allows you to convert it to permanent insurance. Now a few of the other things, and I mentioned some term insurance, if you look at what's available out there in the market, they typically all end like where you can't carry it on forever. So a lot of life companies, it's age 85, but I've seen 80 and I've seen 71. So just be aware at some point you will not be able to renew your term insurance. But those are the kind of questions you need to be asked if you're buying term insurance. You need to know, is it convertible? And at what age can I no longer convert it? And at what age will it no longer be there for me? Because I can't this policy ends. So that's some things about term insurance and the reason people use term insurance and there's lots of good reasons for it. One is when you're young and you have a lot of responsibilities. And when you really look at what would it cost to look after your family if you left earth early, those numbers can get pretty high. So term insurance allows you to put enough protection on your life very economically. And so I always encourage people, if you can afford to put whole life on, put whole life on. And if there's more protection needed, then let's look at a term insurance to guarantee that that protection is there for your family and to guarantee your insurability.

Now let's just talk a bit about whole life. Now I'm talking about whole life and not just permanent insurance. I'm talking about participating dividend paying whole life insurance. So the first thing about it is when you put it on, it can be there for your whole life. And that's the key piece because it just provides all kinds of good things for you. From an estate planning perspective, if you have a whole life insurance policy, it can support what you wanted to do within your state and how you wanted to transfer wealth to your family. There's a lot of key attributes with whole life insurance. It's safe, it's liquid. So as you build up value in a dividend paying whole life insurance policy, you can access that cash value and you can use it while you're alive. That's a huge benefit. And most people, a lot of people don't even realize that that's available and how effective it can be in making a difference in their life and all the growth that goes on within a dividend paying whole life insurance policy is tax free and you don't have to worry about market volatility, not influenced by market volatility at all. So you just get a steady rate of return and you get control. That's the part that I like about it. You get to control a lot of the things that go on because the contract is a unilateral contract and that gives you all kinds of control. You get to decide if you want to transfer it to someone else. There's just lots of great attributes. It's like private. And so if you took a policy loan against a whole life insurance policy.

Equifax would have no knowledge of that policy loan because it's a private deal. So there's just all kinds of things that are positive about whole life insurance. And I just know it serves a purpose. Unlike term, which is for a temporary problem, whole life solves a permanent problem. So if you're looking at doing wealth transfer, there's no better way because when you pass at the end and you wanted to transfer X amount of wealth, it goes to your beneficiaries tax free. There's just some huge pluses that come with whole life. So I could go on and talk about all the positive attributes of life insurance and whole life insurance. I hope this just gives you a really good idea of of some of the living benefits of whole life insurance and life insurance in general. But if you want to learn more about the benefits of whole life insurance, I encourage you just to look at some of this other information that we have, and if you haven't subscribed to our YouTube channel, I'd highly recommend it. You can just get excellent information related to the living benefits of whole life insurance. With that, I wish you well and thank you.