How to Choose the Best Whole Life Insurance Policy

If you’re thinking about purchasing a whole life insurance plan, you probably already know that it’s a type of coverage that comes with two advantages. Whole life policies offer protection and peace of mind for your lifetime and can work as a savings tool that helps you build wealth and plan for your future and the future of the people you love.

Life insurance, however, isn’t a one-size-fits-all product. How do you know if whole life insurance is the right product for you — and how do you choose the specific whole life insurance policy that’s the best fit for your financial goals? There are several important factors to consider before making your decision.

Here, we break down the typical features offered by whole life insurance plans, including how they differ from other types of insurance and how you can leverage your plan to grow your savings while looking after your family.

Key takeaways

• Whole life insurance plans provide lifetime coverage, paying out a death benefit regardless of when you die.

• Unlike term life insurance, whole life policies can feature a cash value component that offers the opportunity to build wealth that you can withdraw, borrow against, or reinvest.

• Participating whole life insurance plans also have a professionally managed investment component that may earn dividends.

• Alternatives to whole life insurance include term life insurance and universal life insurance.

What is whole life insurance?

A whole life insurance policy provides insurance coverage for your entire life, as long as premiums are maintained. When you pass away, your policy pays a fixed amount called death benefit to your beneficiaries. These policies may also include a cash value component where a percentage of each of your premiums goes towards the cash value of your policy, earning interest at a fixed rate. 

How does whole life insurance work?

There are several unique features that differentiate whole life insurance from other types of coverage. The biggest, and perhaps most important factor is that a whole life insurance policy protects you for your entire life, unlike term life insurance policies which offer coverage for a set term (usually ten, 15, or 20 years). When you die, your whole life insurance policy pays a guaranteed, tax-free death benefit to your selected beneficiaries, as long as premiums are maintained.

With a whole life insurance policy, you’ll have two options to grow your wealth: cash value or dividends, depending on the type of policy you choose.

A cash value component acts as a tax-deferred savings account. Policyholders have access to these funds and can use them to supplement their retirement income, fund home renovations, or take a dream vacation – it’s up to you.

With participating whole life insurance plans, part of your premium payments is pooled with other policy holders in a fund that is professionally managed and has the potential to produce earnings. These earnings are paid out in dividends when the fund produces growth or can be reinvested to pay off premiums or purchase additional insurance.

What are the benefits of whole life insurance?

With a whole life insurance policy, you’ll have access to additional features and benefits that other types of life insurance don’t offer. These benefits include:

• A savings component that grows over time at a guaranteed rate

• The ability to use your policy’s cash value as collateral against a loan

• Access to that cash value and the freedom to use it for whatever you choose including premium payments, supplemental retirement income, or a bucket list vacation

• The potential to earn dividends on the invested portion of your policy if you choose a participating whole life insurance plan

• Premium payments that are set from the start of your plan and remain regular and consistent, allowing for easier financial planning

• A guaranteed death benefit that isn’t subject to taxation

• Estate planning benefits that allow you to protect the wealth you’ve worked hard for and pass it on to your loved ones

Alternatives to whole life insurance

Different types of life insurance coverage are available to suit different needs and unique financial goals. If you’re considering signing up for a life insurance plan, you might also want to consider:

Term life insurance

Term life insurance offers coverage for an entire lifetime while term life insurance covers you for a specific length of time, typically between 10 and 40 years, depending on the plan you select. You may not need a medical exam to qualify, and the premiums are typically lower because there are no savings or investment components.

Read more: Term vs permanent life insurance

Universal life insurance

The differences between whole life insurance and universal life insurance are in the details. Both offer lifelong coverage, a death benefit payout, and a cash value component. However, with universal life insurance, policyholders have the potential to grow their death benefit and take a greater role in managing the investment components of their policy. 

What to consider when choosing a whole life policy

To understand whether a whole life insurance policy is the right kind of coverage for you and your family, consider these key factors:

Your coverage needs: Think carefully about the kind of coverage you need, how long you might need it for (based on your current age), and the financial goals you have for yourself and your loved ones. 

Your premium affordability: With a whole life policy your premiums are fixed which makes for simplified budgeting; however, you need to be sure that you will be able to afford the premium payments both now and in the future.

Your policy as a savings and investment tool: If you’re planning to use your policy to grow your savings and act as an investment tool, evaluate it carefully to ensure that it aligns with your financial goals. It’s also important to understand the different ways in which the cash value component of your plan can be leveraged for loans or withdrawals.

The policy’s exclusions: Be sure to take careful note of what is and isn’t covered by your policy. In what kinds of situations might you encounter an exclusion?

The reputation of your policy provider: Choosing the right life insurance policy is a decision made easier with guidance from an accredited insurance broker and a trustworthy insurance provider.

Common mistakes to avoid with whole life insurance

To select the ideal whole life insurance policy, it’s important to keep in mind the common errors people often make when deciding on a plan.

• Don’t underestimate your coverage needs. People may need more coverage than they think they do. Consider the number of people who rely on you, the amount of debt you have, and your current income. Use our life insurance calculator in order to get an initial estimate.

• Don’t sign on to a plan with premiums that are beyond your current or future budget. Failing to make premium payments can put your coverage and death benefit at risk.

• Always read the fine print and consult an accredited insurance advisor if you still have questions or don’t understand something you read.

Grow your wealth and protect your family with whole life insurance

Whole life insurance is an insurance product that provides lifelong coverage for you and your loved ones. You’re protected when you die, no matter when or at what age. Your beneficiaries receive a death benefit payout that helps support them financially after you’re gone.

Additionally, whole life plans include components that serve to grow your savings and offers the ability to earn dividends that can be reinvested or used to supplement your income. Should an unexpected expense come up, your cash value component may be eligible for withdrawal or used as collateral against a loan. It’s protection with built-in flexibility and financial opportunity.

FAQs about the best whole life insurance policies in Canada

Is whole life insurance a good investment?

Whole life insurance provides lifelong coverage while also featuring tools for savings and investment. The cash value component of your policy offers guaranteed growth that does not depend on market performance. Participating whole life insurance policies also have the potential to earn dividends based on the performance of the professionally managed investment component.

Who should get whole life insurance?

Whole life insurance is ideal for people who want the peace of mind that comes with knowing their loved ones and dependents will be provided for financially in the future. It can also act to bolster estate planning, protecting the assets you’ve worked hard for and want to pass on to your family.

Can I cash out my whole life policy?

Yes. If you decide to do this, your policy provider should be able to provide the cash surrender value of your plan. When you die, however, your beneficiaries will no longer receive the death benefit payout. It’s important to know, there may also be tax penalties related to the cash surrender value.

Does whole life insurance pay dividends?

Participating whole life insurance features a professionally managed investment component that offers the potential to earn dividends based on market performance.

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