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Term life insurance pays if you die within a set period, such as 10 or 20 years, or until a set age like 65. It costs less when you first buy it and has no cash value. Permanent life insurance covers you for life. It usually costs more and usually builds a cash value. Many people use term for needs that end, like a mortgage, and permanent for needs that last.
What term life insurance is
- It pays a death benefit if you die within a set period, such as 10 or 20 years, or until a set age such as 65.
- Premiums are usually lower than permanent insurance when you first buy it.
- Some term policies can be renewed. The premium usually goes up when they renew.
- Term policies don't build a cash value, so you get nothing back if you cancel.
What permanent life insurance is
Permanent life insurance covers you for your whole life. It usually builds a cash value. If you cancel, you get that cash value back, but it is usually less than what you paid in.
- Whole life: premiums don't change as you get older. The policy often has a guaranteed minimum cash value.
- Universal life: life insurance combined with an investment account. The value of the account can rise or fall with the investments, and premiums can go up if returns fall.
If you borrow against the cash value, you must repay the loan. An unpaid loan can reduce what your family receives.
Questions to ask before you choose
- How long do I need coverage, and for what?
- If I choose term, can it be renewed, and what would renewal cost?
- Can the term policy be changed to permanent coverage later, and until when?
- For universal life, which parts are guaranteed and which depend on investments?
Side-by-side
An example
A couple in their mid-30s have a 25-year mortgage and two young children. A term policy that lasts about as long as the mortgage and the children’s growing-up years could cover those needs. If they also want money for final expenses whenever they die, a smaller permanent policy could sit alongside it. Real prices, eligibility and terms depend on the insurer and on underwriting.
Put it into numbers
FAQs
Is the death benefit taxed?
Usually not. In most cases, the person who receives a life insurance payout after someone dies doesn’t pay income tax on it. If they invest the money, income earned afterward may be taxable. If the payout goes to the estate instead of directly to a named beneficiary, it becomes part of the estate and may be available to pay debts and other estate obligations. This is general information, not tax advice.
What happens when my term ends?
Coverage ends unless the policy can be renewed. If it can, the premium usually goes up at renewal.
Who should I name as my beneficiary?
You can name a spouse, another family member, a friend or a charity. If you don’t name anyone, the insurer pays your estate. If you name a child, ask about appointing a trustee for the insurance money. In B.C., if insurance money is payable to a minor and no trustee has been appointed for it, the insurer may have to pay it to the Public Guardian and Trustee to hold for the minor.
What affects the price?
Premiums usually depend on the type of insurance and on your age, gender and medical history.
Sources
General information only, not advice for your situation. Coverage depends on each policy's terms, conditions, limitations and exclusions.