What is permanent life insurance and who actually needs it?
- Permanent life insurance covers your whole life instead of a set number of years, so it always pays out eventually.
- It costs several times more than term for the same coverage because the insurer knows it will pay a claim.
- It's built for estate planning, inheritance and lifelong dependants, not for the mortgage-and-young-kids stage most clients call us about.
The short answer
Permanent life insurance covers you for your entire life, not just a set number of years. Because the insurer knows the claim will eventually be paid, the premiums are much higher than term for the same coverage amount, often several times as much. Most permanent policies also build a cash value, a savings component you may be able to access while you're alive. It exists mainly for estate planning and lifelong needs, not for the mortgage-and-young-kids years most of our clients are calling about, which is what term life insurance is built for.
How is this different from term life insurance?
Think of it as the difference between renting and owning. Term life insurance covers a set period at a lower price, and the coverage ends if you outlive the term. Permanent life insurance costs more but never expires as long as it's paid for, so it is guaranteed to eventually pay out.
| Term life | Permanent life | |
|---|---|---|
| Length of coverage | Set period (10-30 years) | Your whole life |
| Monthly cost for same coverage | Lower | Much higher |
| Cash value | None | Usually builds over time |
| Best for | A need with an end date | A need with no end date |
The two main types
There are two common structures in Canada:
- Whole life insurance: premiums and death benefit are fixed for life, and the cash value grows on a set, more predictable schedule set by the insurer.
- Universal life insurance: premiums and death benefit can often be adjusted, and the cash value can usually be directed into different investment options, which means more flexibility but also more for you to manage and more that can go wrong if it isn't monitored.
We cover the trade-offs of whole life versus universal life in more depth in pros and cons of whole life insurance.
Who actually needs permanent coverage?
In our experience, permanent life insurance earns its higher price for a fairly small set of situations:
- Covering a final tax bill or estate costs so an inheritance doesn't have to be sold off to pay them
- Providing lifelong support for a dependant who will need care after you're gone
- Leaving a guaranteed gift to family or a cause, regardless of when you die
- Certain business or tax-planning structures, which need advice specific to your situation
If none of those describe you, and your real need is protecting income, a mortgage, or your kids' years at home, term life insurance almost always does the job for a fraction of the price.
What it costs, roughly
We don't publish permanent life insurance rate tables the way we do for term, because pricing depends heavily on the specific product, payment structure and insurer, and needs a proper quote to be meaningful. As a general rule of thumb from working with clients over 10+ years, expect permanent premiums for the same coverage amount to run several times higher than term life insurance at the same age, which is why we usually recommend it only once a specific permanent need is identified, not as a default.
How permanent policies can become "paid up"
Many permanent policies let you choose a set number of payment years, for example 10 or 20 years, instead of paying premiums for life. Once that payment period is done, the policy stays in force without further premiums, and your beneficiaries still receive the death benefit whenever you die. This is one reason people describe permanent insurance as being like buying a house rather than renting one: you pay more up front, but eventually the payments stop while the coverage keeps going.
A concrete example of a fit
Consider a 55-year-old business owner with a $900,000 estate who wants to make sure their adult children inherit the business assets intact rather than having to sell part of it to cover a tax bill triggered at death. A permanent policy sized to roughly cover that expected tax liability solves a problem term life insurance can't, because the death is certain to happen eventually and the liability needs to be covered whenever it does. Compare that to a 32-year-old renter with no dependants, for whom permanent coverage would mostly just be an expensive, unnecessary line item.
What to do next
If you're not sure whether your situation calls for permanent coverage or plain term, that's a conversation worth having before you apply for either. Read our fuller primer on how buying life insurance works and get a sense of your own numbers with a quote.
FAQ
Does permanent life insurance ever expire?
No. As long as premiums are paid (or the policy is paid up), it stays in force for your entire life, so the death benefit is eventually always paid, unlike term which can expire with nothing paid out.
What is cash value and can I access it?
Cash value is a savings component that builds up inside some permanent policies over time. Depending on the policy, you may be able to borrow against it or withdraw from it while you're alive, usually reducing the death benefit if you do.
Is permanent life insurance a good investment?
It's designed as insurance first, with a savings component attached, not as a standalone investment. Most Canadians who haven't maxed out an RRSP or TFSA will usually get better growth from those before considering a permanent policy's cash value.
Philip Setter has been a licensed life insurance advisor since 2014 and founded Affinity Life in 2020. He's a climber, ice climber and ski tourer based in Calgary.