The Key Features of Whole Life Insurance in Canada

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January 4, 2024

Whole life insurance is a type of permanent life insurance policy that provides coverage for the insured’s entire lifetime, as long as premiums are paid. Here are some key features of whole life insurance:

Lifetime Coverage: Unlike term life insurance, which covers you for a specific period, whole life insurance remains in effect for your entire life.
Fixed Premiums: The premiums for whole life insurance are typically fixed, meaning they don’t change over the life of the policy. This can make budgeting easier.
Cash Value: A portion of your premium payments goes into a cash value account, which grows over time. The cash value can be borrowed against or withdrawn (though this may reduce the death benefit or result in taxes).
Death Benefit: The policy pays out a death benefit to your beneficiaries when you pass away. This amount is usually tax-free.
Potential Dividends: Some whole life policies are “participating,” meaning they can earn dividends based on the insurance company’s financial performance. These dividends can be taken in cash, left to accumulate, or used to decrease premiums or buy additional coverage.
Higher Premiums than Term Life: Because of the lifetime coverage and cash value component, whole life insurance typically has higher premiums than term life insurance.
Estate Planning and Wealth Transfer: Whole life insurance is often used in estate planning, as it provides a guaranteed death benefit and can help address estate taxes or provide an inheritance.
Tax Benefits: The policy’s cash value grows on a tax-deferred basis, and the death benefit is generally tax-free.

When considering whole life insurance, it’s essential to evaluate your financial situation, long-term goals, and the cost of the policy. Consulting with a financial advisor or an insurance professional can provide personalized advice based on your specific needs and circumstances.

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