What is whole life insurance?
Whole life insurance is a type of permanent life insurance in Canada. It provides lifelong coverage and a tax-free payout to your loved ones when you pass away. It also builds cash value over time, which you can use for your personal needs while you're still alive.
Every whole life insurance owner will enjoy the following benefits:
• A tax-free lump sum payout
• Premium payments that never increase
• Cash value that grows over time with tax advantages
What are the key features of whole life policy?
Buying whole life insurance in Canada gives you access to the following benefits:
• Tax-Free Death Benefit: Whole life insurance is a valuable option for anyone looking into long-term financial planning. It offers guaranteed death benefits to your loved ones when you die. The payout is locked when you buy your policy and It will never decrease.
• Fixed Premiums for Life: Your premium stays the same for life. Unlike term life insurance where premiums may get more expensive when you renew, whole life insurance premiums are fixed for life. It makes budgeting much easier.
• Cash Value Component: Part of each payment you make is invested by the insurance company to build cash value, which you can access while the policy is still active. Your money also grows tax-free, making it an excellent financial resource for retirement.
• Dividend Earning Potential: If you have a participating whole life insurance policy, your insurance company may pay dividends based on its overall performance. These dividends can be used to buy more coverage, reduce your premium, or grow your cash value. However, they are not guaranteed. That said, many Canadian insurers have a strong track record of paying dividends consistently.
What's the difference between whole life vs term life insurance in Canada?
| Feature | Whole Life Insurance | Term Life Insurance |
|---|---|---|
| Duration | Lifetime coverage | Temporary (10, 20, or 30 years) |
| Cost | Higher initially, but stays fixed for life | Lower initially, but increases upon renewal |
| Cash Value | Builds cash value over time | No cash value |
| Dividends | May pay dividends (if participating) | No dividends |
| Relative Cost | 5–15x more expensive at first | More affordable short-term |
| Tax Benefits | Tax-deferred growth + tax-free death benefit | Tax-free death benefit only |
| Payment Period | Lifetime or limited pay (e.g., 20-pay) | For the length of the term only |
Term life insurance is a better fit when you have short-term needs, like mortgage protection or income replacement while raising a family. It offers maximum coverage at the lowest initial cost for a fixed period.
Whole life insurance, on the other hand, is ideal when you want lifelong protection. Both the premiums and the death benefit stay the same for life, and the policy also builds tax-advantaged cash value over time—making it a long-term financial asset.
How does whole life policy work?
To understand how whole life insurance works in Canada, let us first look at the key components of the policy.
• Premiums: Your regular payments to the insurance company are called premiums. With whole life insurance, your premium is fixed when you buy the policy and stays the same for life—regardless of age or health changes.
• Death Benefit: This is the tax-free payout your beneficiaries will receive when you pass away. If your whole life insurance policy is participating life insurance, you may also receive dividends, which can be used to purchase additional coverage and grow your total death benefit.
• Cash Value: This is the key highlight of a whole life insurance policy in Canada. The savings component accumulates cash value over time within your policy. The accumulated cash value grows at a guaranteed minimum rate and is not taxed while inside the policy. You can access this value through policy loans or withdrawals. Like the death benefit, the cash value may increase even more if your policy earns dividends.
So, we can conclude that a whole life insurance policy issued in Canada is a combination of the following:
• Lifetime protection (the death benefit)
• Tax-deferred savings (the cash value)
How often you pay
• Monthly (usually with a small fee)
• Quarterly
• Semi-annually
• Annually (often with a 2-4% discount)
How long you pay
You can either pay until you die or finish payments over a specific period.
• 10-Pay (all premiums paid within 10 years)
• 20-Pay (all premiums paid within 20 years)
• Pay to 100 (premiums paid for whole life)
People planning for retirement often choose for a limited-pay option. It helps them to finish off the premiums before their retirement. However, these plans come with higher premiums during the payment period.
How does your cash value grow in a whole life insurance policy?
This is one of the most common questions people ask when considering whole life insurance. And it makes sense also, because whole life insurance is more than just protection. It's a long-term financial asset that supports you throughout your lifetime.
In a whole life insurance policy, a portion of your premium goes toward building cash value ( the amount is decided by the insurance company). Over time, the portion allocated to cash value increases, allowing your savings component to grow steadily. This growth typically includes both a guaranteed component and a non-guaranteed component (such as dividends, if your policy is participating). The guaranteed portion grows at a fixed rate and is independent of market conditions, giving you long-term peace of mind.
How do participating whole life policies help grow your cash value?
In a participating whole life insurance policy, your cash value grows in two ways: through a guaranteed and a non-guaranteed component. The guaranteed portion grows at a fixed rate that's set by the insurer and it is not affected by market conditions also. The non-guaranteed component grows depending upon the dividends allocated. While many Canadian insurers have a strong track record of paying dividends, they are not guaranteed and may vary from year to year.
What are the tax benefits of cash value in whole life insurance?
With whole life insurance, you don't pay any taxes while your cash value grows within the policy. This is one of the main reasons why people choose whole life insurance over other fully taxable investments.
For example, consider Sasha. She is a 35-year-old woman having whole life insurance worth $500,000. It will help her get a cash value of approximately $150,000-$200,000 after 20 years. The final amount depends upon the insurer and dividend performance.
How can you access the cash value in a whole life insurance policy?
You can access the cash value in your whole life insurance policy while you're still alive, as long as the policy is active. This is one of the key benefits of whole life insurance policies.
In Canada, policyholders typically have the following options to access their cash value:
Policy loans
You can borrow against your cash value through a policy loan. Here's how it works:
• Available after couple of years years, once enough cash value has accumulated and depending upon insurance company.
• Approval is guaranteed — no credit check required
• No mandatory repayment schedule (though interest will accrue)
• The loan is not considered taxable income
• Any unpaid loan balance will reduce your death benefit
Partial withdrawals
You can permanently withdraw a portion of your policy's cash value. Here's what to keep in mind:
• If the amount withdrawn exceeds the total premiums you've paid, it may trigger a tax liability
• The maximum withdrawable amount is often limited to a percentage of your total cash value
• In participating policies, withdrawals may reduce future dividend payments
Complete surrender
If you cancel your whole life insurance policy, you will receive its cash surrender value. However there are certain implications on your policy.
• All your coverage will end permanently
• You may face tax implications if the surrender value exceeds the total premiums you've paid
• Surrender charges often apply, especially in the early years of the policy
Most experts do not recommend canceling a policy unless you no longer need life insurance or have a solid financial alternative.
At Policy Scanner, we suggest using policy loans for short-term needs such as education expenses or emergencies. Partial withdrawals can also be a smart way to supplement your retirement income without losing coverage entirely.
How much does whole life insurance cost in Canada?
| Age | Gender | $100,000 Coverage | $250,000 Coverage | $500,000 Coverage |
|---|---|---|---|---|
| 30 | Male | $80 to $110 | $165 to $220 | $310 to $415 |
| 30 | Female | $70 to $95 | $140 to $190 | $265 to $355 |
| 40 | Male | $125 to $170 | $260 to $350 | $495 to $665 |
| 40 | Female | $105 to $140 | $215 to $285 | $410 to $550 |
| 50 | Male | $195 to $260 | $420 to $560 | $815 to $1,090 |
| 50 | Female | $165 to $220 | $350 to $465 | $680 to $905 |
| 60 | Male | $305 to $405 | $690 to $920 | $1,355 to $1,805 |
| 60 | Female | $250 to $335 | $560 to $745 | $1,100 to $1,465 |
The actual cost of your whole life insurance policy in Canada may vary based on:
• Health conditions: If you have a pre-existing medical issue, your premiums are likely be higher.
• Smoking status: Smokers pay significantly more than non-smokers.
• Policy type: Participating policies (which may pay dividends) usually cost 20–30% more than non-participating ones.
If you prefer to stop paying premiums before retirement, you can choose the limited pay options. These plans let you fully pay off your policy early — but they come with higher monthly premiums: • 20-Pay: Paid up in 20 years (+40% to +60% premium increase) • 10-Pay: Paid up in 10 years (+90% to +120% premium increase) Just like other plans discussed above, rates for limited-pay whole life policies depend on your health, age, smoking status, and any additional features you select. Please consult with a PolicyScanner representative for personalized quote
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What health factors affect your premium rates?
Your health is reviewed by the underwriting team when you purchase a whole life insurance plan. Several factors can influence your premium rates.
Heart and circulation issues
High blood pressure or a history of heart disease can significantly impact your rates. Premiums may increase significantly, depending on severity and how well the condition is controlled.
Diabetes: If you have well-controlled diabetes, rates may increase moderately. On the other hand, poorly controlled diabetes can lead to rate increases significantly.
Cancer history: If you are a cancer survivor, the rate depends on the type of cancer, its stage, and the time since recovery. A recent cancer history may even lead to a declining policy issue by the insurance company.
For individuals with health concerns, critical illness insurance can provide additional protection for specific conditions.
Respiratory conditions: Rates may increase moderately to significantly based on the severity of asthma or COPD.
Key health measurements that matter
• BMI (Body Mass Index): The ideal BMI range is 18.5–25. A higher range may result in premium increases.
• Blood pressure: You'll get the best rates with readings below 120/80.
• Cholesterol levels: For the best rates, your total/HDL ratio should be under 5.0.
• Family history: Early cardiac events or cancer in your parents or siblings can affect your rates.
Lifestyle factors
• Smoking: To get the best rates, most insurers require you to be tobacco-free for at least 12 months. However its completely depend upon the insurer.
• Alcohol use: Frequent or heavy alcohol consumption can significantly increase your rates.
• Recreational drugs: Use of recreational drugs may lead to a declined application or significant rate increases.
• High-risk activities: Activities like skydiving, scuba diving, or motor racing may result in policy exclusions or higher premiums.
Connect with your PolicyScanner representative to get better options instead of applying directly to a single company. We have a team who are specialized in finding coverage for people with medical issues.
What are the tax benefits of whole life insurance in Canada?
A tax-free death benefit is one of the biggest advantages of buying a whole life insurance policy in Canada. Your beneficiaries will receive a lump sum that is completely tax-free when you pass away.
Here are the key tax advantages:
No income tax on benefits
• Death benefits are tax-free to your beneficiaries
• The amount won't impact their yearly tax returns
• The terms and conditions are the same, whether the money is sent to individuals, companies, or trusts
What are the estate planning benefits of whole life insurance?
Canada doesn't have a formal "estate tax," but you may still face big tax bills when you pass away.
For example:
• You may have to pay tax on investments that have gone up in value
• All the money in your RRSP or RRIF could be taxed at once
These taxes can take away 30–50% of what you leave behind.
Whole life insurance helps protect your estate. It provides a tax-free payout that your family can use to cover those final taxes and keep more of what you've built.
Does whole life insurance help avoid probate fees?
Probate fees are charges your estate may have to pay after you pass away. When your will goes through the legal process (called probate), the government takes a small percentage of your total estate's value as a fee.
Most provinces let you avoid these fees if your life insurance policy has a named beneficiary — because it pays directly to them, not through your estate.
For example, if you live in Ontario and plan to leave a $500,000 investment account to your children through your will, they could lose $7,500 to probate fees.
But if you leave them $500,000 in life insurance with a named beneficiary, they'd receive the full amount — no probate, no fees.
How does tax-deferred growth work in a whole life insurance policy?
Let us review with the tax advantages:
• The cash value growth and any other investment gains on your whole life insurance policy will grow without being taxed each year
• You don't need to report this growth on your annual tax return
Now, let's assume you're in a 45% tax bracket and you invested $10,000 for 30 years, earning a 5% annual return.
• In a regular taxable account, you'd end up with around $26,500 after taxes
• But with a whole life insurance policy, the same investment could grow to approximately $43,200
• That's a difference of about $16,700 — purely because of the tax-deferred growth advantage
How to access whole life insurance money tax-efficiently?
Whole life insurance policyholders can access their cash value with minimal or no tax impact:
Policy loans:
• Not considered taxable income
• Don't need to be reported on tax returns
• Interest may be tax-deductible if the loan is used for investment purposes
Withdrawals:
• Tax-free up to the amount you've paid in premiums
• Any amount exceeding what you've paid becomes taxable
These tax free growth factors make whole life insurance policy in Canada a powerful complement to TFSAs and RRSPs.
What are the special tax benefits for business owners in Canada?
Owning a whole life insurance policy in Canada gives you access to many tax benefits. For example, when your corporation owns the policy, the death benefit—minus the adjusted cost basis (ACB)—creates a credit to your company's Capital Dividend Account (CDA).
Such CDA credits let you distribute dividends to shareholders completely tax-free. For example, you can create up to $800,000 in tax-free dividend potential using a $1,000,000 death benefit with $200,000 in total premium payments.
Using corporate funds to pay premiums is often more tax-efficient than paying from personal salary or dividends. It can create an effective "tax discount" of 30–45% on your premium costs.
You can also implement several smart strategies to save more on taxes.
• Key Person Insurance: Protects your business if a vital employee passes away, while building tax-advantaged assets within the corporation.
• Buy-Sell Agreements: Helps fund buy-sell agreements to ensure smooth business transitions when an owner dies.
• Corporate Retirement Planning: Allows for tax-efficient retirement income using corporate structures.
• Estate Equalization: Helps ensure fair treatment among children when only some are active in the family business.
Make sure to work with a PolicyScanner advisor to explore more specialized strategies and get the maximum tax benefits from whole life insurance.
Whole life insurance provides triple tax benefits: tax-free death benefits, tax-deferred cash value growth, and tax-efficient access to your money while alive. It's one of the few remaining tax-advantaged wealth transfer methods in Canada.
How do you compare top whole life insurance companies in Canada?
| Provider | Founded | Market Position | Specialties | Best Suited For |
|---|---|---|---|---|
| Sun Life Financial | 1871 | Canada's largest insurer by total assets | Strong participating whole life policies, enhanced dividends | Individuals seeking long-term dividend performance |
| Manulife Financial | 1887 | Largest Canadian insurer by market cap | Competitive non-participating options, simplified products | Business owners and middle-market consumers |
| Canada Life | 1847 | Largest Canadian insurer by in-force coverage | Balanced par policy options, strong guarantees | Families focused on estate preservation and growth |
There are many options available in Canada, from Canadian insurance companies to global companies and specialized providers, when it comes to buying a whole life insurance policy.
Canada Life includes the former Great-West Life and London Life and It is one of the oldest life insurance companies in Canada.
Other notable Canadian insurers are: Empire Life, Equitable Life of Canada and many more. Empire Life was founded in 1923 and is known for its underwriting flexibility for clients with health concerns. It provides additional benefits to people living in Ontario and Atlantic Canada.
Equitable Life of Canada, founded in 1920, is one of the largest mutual companies in Canada. It is popular for offering competitive whole life pricing.
What about bank-owned life insurance in Canada?
If you are looking for bank-owned life insurance policies, the major ones are RBC Insurance and BMO Insurance.
They offer competitive whole life insurance rates and provide integration advantages for existing banking clients.
It's a good idea to speak with a PolicyScanner advisor and let them know about your preferences. They can easily filter out the options and provide you with personalized whole life insurance policy recommendations.
What are the financial strength ratings of Canadian life insurance companies?
| Company | A.M. Best | S&P Global |
|---|---|---|
| Sun Life | A+ | AA |
| Manulife | A+ | AA- |
| Canada Life | A+ | AA |
| Empire Life | A | A+ |
| Equitable Life | A | N/A |
| RBC Insurance | A+ | AA- |
| BMO Insurance | A | A+ |
What do these ratings mean for you?
Financial strength ratings are extremely important when choosing a life insurance provider. They reflect the insurer's financial stability and ability to pay claims over time.
• A+ or higher: Minimal concern, exceptional financial strength
• A to A-: Low risk with a very strong financial position
• B++ to B+: Good financial security, but ongoing monitoring is advisable
The good news? All major Canadian insurance companies maintain strong ratings. The industry is well-regulated, with strict capital and solvency requirements.
If you have any doubts about a specific insurance company, speak with a PolicyScanner advisor for clear guidance and comparison support.
Is whole life insurance a good choice for you in Canada?
Whole life insurance is not always the right fit for everyone. Here are some common situations that can help you decide whether a whole life insurance policy is the best option for you.
1. Estate planning
If you're planning your estate, whole life insurance offers valuable long-term benefits and its a right fit for you.
Have built significant wealth that could face tax bills upon death:
• Want to leave a guaranteed, tax-free inheritance regardless of market performance
• Need to equalize inheritances among children, especially if a family business is involved
• Want to create a lasting charitable legacy
2. Tax benefits for businesses
Whole life insurance can be a powerful financial tool for Canadian business owners who:
• Need funding for buy-sell agreements
• Want tax-advantaged asset growth within their corporation
• Require protection if a key employee passes away
• Plan for smooth business succession
3. Guaranteed returns
If you're looking for a conservative, low-risk investment option, whole life insurance offers guaranteed returns. It's a great fit if you:
• Want returns that aren't affected by market fluctuations
• Prefer tax-advantaged growth
• Are looking for diversification beyond traditional stock market investments
• Need principal protection with long-term growth potential
4. Excellent complement to TFSAs and RRSPs
Many high-income Canadians max out their TFSA and RRSP contributions. In that case, whole life insurance is a smart complement if they:
• Want additional tax-sheltered growth beyond registered accounts
• Need liquidity to cover estate taxes
• Want extra creditor protection on their savings
• Care about preserving and transferring wealth to future generations
5. Long-term financial planning
This policy is a great fit for people with a long-term financial outlook who are willing to:
• Commit to premium payments over 10+ years
• Value predictability and stability in their financial planning
• Explore tax-free income options for retirement
• Start early so the cash value has time to grow significantly
6. Special needs
A whole life insurance policy is an excellent choice if your family is in a unique situation, such as:
• Having dependents with special needs who require lifelong care
• Parents who want to fund their children's or grandchildren's education
• Individuals who wish to leave a lasting financial legacy
• Blended families that need more flexible estate planning solutions
If you're still in doubt, connect with a PolicyScanner advisor. They'll help create the right-fit plan based on your unique needs. Our team includes qualified financial advisors who can help determine if whole life insurance aligns with your long-term financial goals.
When is term life insurance a better option for you?
Term life insurance makes more sense in the following situations:
1. Get temporary coverage: If you're on a budget and need maximum coverage, term life insurance is a good fit. Many Canadian families with limited cash flow choose term life to get substantial protection for temporary needs like mortgages or education expenses. It's also best suited for working-age breadwinners and parents with dependents who will eventually become financially independent.
For mortgage-specific protection, consider mortgage life insurance as well.
2. Overcome budget constraints: Term life insurance offers substantial protection even if you have a limited premium budget. It lets you focus on financial goals like paying off debt or buying a home. The policy provides cost-effective coverage for specific time periods, with premiums substantially lower than whole life insurance. In short, it's a great option when you can't commit to long-term premium payments due to budget limitations or other financial priorities.
3. Develop your own financial strategy: Some people prefer to manage their investments independently without help from financial advisors. They purchase term life insurance using the "buy term and invest the difference" strategy. This approach can work well for those with higher risk tolerance and investment expertise, as it may offer greater returns through market-based investments. At PolicyScanner, we often recommend a strategic blend of term and whole life insurance — covering both your temporary needs and providing long-term protection with valuable tax advantages.
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How do you buy whole life insurance in Canada?
Getting whole life insurance at the best rate is crucial as you will be paying premiums for several decades.
1. Figure out how much coverage you need
The process starts with calculating how much coverage you actually need. Be sure to include:
• Income replacement
• Outstanding debts
• Future education costs
• Estate planning goals
Make sure the premiums fit within your budget. Also, explore optional features like riders for critical illness or disability coverage.
2. Find the right advisor
A quick consultation with an expert can save you thousands over time. At PolicyScanner, our licensed life insurance advisors compare quotes from multiple Canadian insurers to help you find the best policy.
We do the research for you, so you don't have to sort through dozens of products yourself.
Our team offers:
• Unbiased advice across multiple companies
• No-cost consultations
• Support in choosing the right coverage and add-ons
You can generate a no commitment quote or schedule a call with the PolicyScanner advisor to get personalized recommendations.
3. Compare your options
When choosing the best whole life insurance policy in Canada, consider the following factors:
• Participating vs. non-participating policies – understand the difference in terms of dividend potential
• Payment period options – lifetime payments or limited-pay options (e.g., 10-pay, 20-pay)
• Available riders – like critical illness, disability, or child coverage
• Premium rates across different insurers – can vary significantly
• Financial strength of the insurance company – check ratings like A.M. Best or S&P
You can start with a no-cost consultation, explore options online, or connect with a PolicyScanner advisor for personalized support — all at your pace.
4. Complete the application
Once you're ready to move forward, you'll need to provide some key details:
• Personal information
• Health-related questions
• Lifestyle factors (such as smoking, alcohol use, and high-risk hobbies)
• Preferred beneficiaries
You'll also choose your payment method and frequency (monthly or annually) during this step. It's a straightforward process, and your advisor or online platform can guide you through it smoothly.
5. Complete the medical exam (if required)
The medical exam typically includes a check of your height, weight, and blood pressure. You may also need to provide blood and urine samples.
For larger policies, additional tests such as an EKG may be required. In some cases, the insurer may ask for medical records or statements from your doctors.
6. Underwriting process
After your application is submitted, the insurance provider will review all information, including medical results, your health history, and lifestyle factors to assess the overall risk.
Based on this evaluation—which typically takes 2 to 8 weeks—the insurer will determine your final premium rates.
7. Review and accept your policy
Once your policy is issued, make sure to carefully review all the documents.
• Check if all the information is accurate
• Confirm that the premium matches your original quote
• Sign the acceptance documents
You'll also need to make your first premium payment after signing.
8. Free look period
The Government of Canada allows you to cancel your policy within 10 to 30 days if you don't find it appropriate or useful. Make sure to review your policy carefully during this time and connect with the insurer if you have any questions or concerns.
9. Policy management
It includes the following points:
• Keeping your beneficiary information up to date
• Reviewing your coverage periodically as your needs evolve
• Monitoring dividend performance (for participating policies)
• Considering premium payment adjustments if needed
The process can feel lengthy, but working with a qualified expert makes it much easier—and often more cost-effective.
Frequently Asked Questions
In case if you have taken policy loans that are not paid yet, the remaining amount is deducted from the death benefit.
• Lifelong coverage
• Guaranteed cash value growth
• Strong tax advantages
• Support for estate equalization
However, if you only need temporary coverage or want to keep your premiums low, term life insurance may be a better fit.
Keep in mind that any outstanding loan balance will be deducted from your death benefit when the policy pays out.
• Investment performance of the company's portfolio
• Mortality experience (fewer claims than expected)
• Operating expenses (if managed below projections)
• Policyholder behaviour, such as how long policies stay in force
Dividends are not guaranteed, but many well-established Canadian insurers have paid them consistently for decades.
But this option can be leveraged before you turn 65 or 70. The exact age is decided by your insurance provider.
For example, for a whole life insurance with $10,000 annual premiums, you will get $140,000 to $180,000 in cash value after 20 years.
• Tax-deferred corporate asset growth
• Funding for buy-sell agreements
• Tax-efficient wealth transfer
• Key person protection
• Enhanced retirement income strategies
• Use the cash value to purchase a reduced paid-up policy (smaller permanent coverage, no further premiums)
• Convert to extended term insurance (original death benefit for a limited period)
• Surrender the policy for its cash value
• Use automatic premium loans (if available) to continue coverage until cash value is depleted
Their goal is to ensure that you receive a value for the payments made over the last few years.
*This guide provides general information about whole life insurance in Canada but isn't financial advice. Everyone's situation is different. Speak to a PolicyScanner advisor before making any insurance-related decisions.*