Term vs Permanent Life Insurance: A Simple Comparison
- Term life insurance is ideal for most Canadian families who have financial obligations and dependents for 10 to 30 years.
- Permanent life insurance is ideal for financial planning benefits and those anticipating future health problems.
- Term provides coverage for a fixed period of time, usually between 10 and 30 years, whereas permanent life insurance provides coverage for the rest of your life.
- A permanent life insurance policy is usually five to 15 times more expensive than a comparable term policy.
Coverage length is the main difference between these two types of life insurance policies in Canada. Term policies last for a set period and permanent policies last until you die.
What is term life insurance?
Term life insurance covers you for a set period (pays out only if you die during the term you choose). It’s cheaper, more common, and a better fit for most Canadians.
Term policies are very popular in Canada, especially for those seeking financial protection for temporary obligations. Individual (i.e. not group) term life sales made up 40 percent of policies in Canada in 2024, more than double that of permanent policies.
What is permanent life insurance?
Permanent life insurance is lifelong (pays out whenever you die). Though appropriate for some people, it’s very expensive and you pay those premiums for life which is well past when your dependents and debts probably need you.
There are several subtypes of permanent life insurance: whole life, universal life, and term-to-100. All last for life, but the features vary.
Let's look at each policy type further.
|
Feature
|
Term Life Insurance
|
Permanent Life Insurance
|
|---|---|---|
|
Coverage duration
|
Fixed term: typically 10, 20, or 30 years
|
Lifelong coverage (as long as premiums are paid)
|
|
Types of policies
|
Typically just “term life”
|
Includes whole life, universal life, and term-to-100
|
|
Coverage amount
|
Typically $100,000 to $10 million
|
Varies based on plan type
|
|
Premium structure
|
Usually fixed for the term
|
Some have fixed premiums; others allow adjustments
|
|
Renewability
|
Some policies are renewable
|
Not applicable ( doesn’t expire while premiums are paid)
|
|
Convertibility
|
Some policies can be converted to permanent
|
Not applicable (policies are already permanent)
|
|
Policy expiry
|
Ends after the specific period unless renewed or converted
|
Expires only if you stop paying premiums
|
|
Cash value/investment component
|
No cash value
|
Some types include a savings/investment component (e.g. whole or universal life)
|
|
Best suited for
|
Parents with minor children, mortgage holders, couples, business owners
|
High-net-worth individuals, those with estate planning needs, or lifelong financial dependents
|
This quick video is a great primer:
Term vs. permanent: which one should you choose?
While most Canadians should choose term coverage, here’s a simple guide to who should get term vs. permanent:
I have a kid and a mortgage.
→ Consider term.
I have a lifelong dependent.
→ Consider permanent.
I have a family with a history of health conditions.
→ Consider getting term and converting later if needed.
Scenario: Young family with a mortgage (term)
Who: Revathi (25) and Nikhil (27) chose two individual term life insurance policies. They are middle income earners with two kids.
What they’re protecting:
- Two dependent children
- Condo in Ottawa
How term coverage fits:
- One policy for each parent
- Higher payout for the higher-earning parent’s policy
- Term length aligns with children’s eventual financial independence
Scenario: High-income individual planning estate (permanent)
Who: Paulette (45) chose a permanent life insurance policy. She has no children and wants to transfer her generational wealth responsibly.
What she’s protecting:
- Inherited wealth
- Properties
How permanent coverage fits:
- Tax-advantaged $15M payout skips probate and goes directly to her niece and nephew (beneficiaries)
- Money can help pay Paulette’s final taxes without forcing property sales
Scenario: Single person with no dependents (term or none)
Who: Martin (38) chose a term policy. He is unmarried and has some retirement savings.
What he’s protecting:
- His estate
- His legacy
How term coverage fits:
- A $50k 25-year policy can cover Martin’s final expenses and estate taxes if he passes away early
- Covers a small donation to his favorite charity
Pros and cons of term life insurance vs permanent life insurance
Life insurance is a smart choice if you have financial obligations that could become burdensome to your loved ones if you pass, but the right type of life insurance policy for you will depend on your financial needs, goals, and stage of life.
Type |
Pros |
Cons |
|---|---|---|
Term |
• Lower cost for the same coverage
• Simple and easy to understand • Matches temporary needs (mortgage, kids) • Option to renew or convert |
• Coverage ends after the term
• Renewal costs can jump later • No cash value or savings |
Permanent |
• Lifelong coverage
• Guaranteed payout (if policy stays active) • May build cash value • Can support estate planning |
• Much higher cost than term
• More complex to manage • Lower returns vs other investments • Often unnecessary for short-term needs |
Bottom line: Term life offers simple, affordable protection for a set number of years, while permanent life offers lifetime coverage and some financial planning advantages but at a much higher cost.
Which is cheaper? Term vs. permanent life insurance
Term life insurance is almost always cheaper than permanent life insurance, at least for healthy average Canadians.
Take a look below at the cost comparison for the various types of life insurance policies:
Policy |
Premium* |
Notes |
|---|---|---|
T10 |
~$14 |
Cheapest, short-term needs |
T20 |
~$19 |
Balance of cost and coverage |
T30 |
~$30 |
Longest coverage, higher cost |
Whole |
$100–200 |
5–15x pricier, lifelong coverage |
* Monthly rates are based on a 30-year-old nonsmoking woman with $500,000 of coverage from PolicyMe. Men typically pay higher rates than women. Smokers pay higher rates than non-smokers.
While life insurance costs vary from person to person, there is a consistent trend when comparing term and permanent life insurance premiums. Permanent life insurance policies are typically up to 15 times more expensive than term coverage. That’s because permanent coverage is guaranteed to pay out and may include a savings or investment component.
Note that life insurance premiums vary based on age, sex assigned at birth, smoking status, health, lifestyle, coverage amount, and policy type.
Is permanent life insurance a good investment?
Permanent life insurance offers an investment component, but this doesn’t mean it’s a good investment. It can seem like a positive feature and a good selling point, but for most people, keeping investment funds in permanent policies doesn’t offer the same flexibility and potential returns that a separate investment fund would.
On top of this, the premiums on a permanent policy are significantly higher than term policy premiums, meaning you’ll have less to invest overall. If you calculate what you’ll pay for a term life insurance policy compared to a permanent one, you’ll find the difference significant.
Next, calculate what you could earn if you invested the cost difference separately, earning interest in a traditional investment account over the next 10 or 20 years.
In most cases, a term life policy is ideal to meet your family’s coverage needs and financial goals, and you can invest the difference in a separate investment account. This way you have the freedom to control how it’s invested and earn greater returns.
How do I know which type of life insurance is best for me?
The best life insurance options will depend on your specific financial responsibilities and long-term goals.
If your needs are temporary, like covering your mortgage, replacing income while your kids are still dependent, or providing financial support for a partner until retirement, term life insurance is likely the better fit. It offers affordable coverage and is designed to match the timelines of these common life stages.
For those with lifelong needs, like supporting a dependent with a disability or managing a large estate, permanent life insurance products may be worth considering. Just keep in mind that the higher cost only makes sense when those needs are truly long-term.
Who is term life insurance good for?
Term life insurance is a practical, cost-effective way to protect your family during the years they need it most.
Here are some common examples:
- Parents with young children: To replace your income and cover living expenses until your kids are financially independent.
- Couples who rely on each other’s income: To help cover shared expenses while you're still working toward retirement.
- Mortgage holders: To ensure your family can pay off the home if something happens to you before the mortgage is fully paid.
- Business owners: To cover business debts or financial obligations if you're no longer around to manage them.
- Couples nearing retirement without sufficient savings: As a safeguard while building your retirement cushion.
- Those supporting elderly parents: To protect your loved ones from financial strain if you're the primary caregiver or income provider.
Find affordable term life insurance with PolicyMe
Who is permanent life insurance good for?
If you have permanent life insurance needs, like a disabled child or are an exceptionally high income earner, a whole life policy might make sense. Here are a few scenarios:
- High net worth individuals ($10M+ in assets): There are tax-deferred benefits for those that have already maxed out TFSA and RRSP accounts
- Canadians with complex estate planning needs: To protect the value of the estate to maximize the inheritance you pass on
- People who need a forced way to save for retirement: But this should not be a standalone retirement saving strategy
FAQ: Term vs. permanent life insurance
Bonnie Stinson is an insurance writer and researcher in Toronto with a decade of experience producing helpful, accurate content for Canadians. They have published resources for some of Canada's most innovative and consumer-trusted companies in the health, legal, and fintech sectors.
Bonnie Stinson is an insurance writer and researcher in Toronto with a decade of experience producing helpful, accurate content for Canadians. They have published resources for some of Canada's most innovative and consumer-trusted companies in the health, legal, and fintech sectors.