A Guide to Life Insurance Options for Canadians

Life insurance provides financial security, delivering a tax-free lump sum to your beneficiaries upon your passing in exchange for your premium payments. Under the Income Tax Act, life insurance benefits receive favorable tax treatment, enhancing its value as a financial tool. Today’s policies go beyond the basics, offering additional features for policyholders seeking more than just a simple payout. Let’s explore the main categories of life insurance to help you find a plan that aligns with your financial needs and goals.

Overview of Life Insurance Types

The four primary types of life insurance in Canada are:

1. Term Life Insurance – Temporary coverage
2. T100 Life Insurance – Permanent coverage
3. Universal Life Insurance – Permanent with investment options
4. Whole Life Insurance – Permanent with cash value growth

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1. Term Life Insurance (Temporary Coverage)

Ideal for short-term needs, term life insurance provides a low-cost entry point, though costs increase with each renewal as you age.

• Policy Duration: Terms range from 10 to 35 years, with renewal options. The two main structures are:
  1. Plans that renew for the same term length after each period.
  2. Plans that switch to annual renewals after the initial term.
• Premiums: Level during the initial term, then rise at each renewal. Longer terms have higher premiums, both at purchase and renewal.
• Benefits: Low initial premiums make this option accessible for young families or individuals with temporary financial obligations.
• Considerations: Premiums increase substantially with each renewal, and most term policies expire before reaching age 85. However, healthy individuals can often obtain a new plan if term costs become prohibitive.
• Best for: Short-term financial needs. Many opt to add term insurance as a rider to a permanent plan, providing flexibility to drop the rider when no longer needed.

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2. T100 Life Insurance (Permanent Coverage)

A more affordable permanent option, T100 offers guaranteed lifetime coverage with a level premium, making it ideal for those needing lifelong protection on a budget.

• Plan Structure: Provides a fixed death benefit and, with T100+ plans, added cash values.
• Premiums: Fixed for life, fully paid by age 100.
• Key Features: T100+ plans offer increasing cash surrender values after year 11, policy loans, and the ability to use the cash value as collateral. If premiums become unaffordable, policyholders can convert to a paid-up, reduced death benefit policy.
• Considerations: T100 lacks premium flexibility; missing a premium risks policy lapse. Some plans, however, allow the cash surrender value to cover missed payments.
• Best for: Lifelong needs with cost-sensitive planning.

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3. Universal Life Insurance (Permanent with Investment Options)

With both insurance and investment components, Universal Life is a flexible plan for those seeking tax-advantaged growth potential.

• Plan Structure: Level death benefit with guaranteed costs, plus the opportunity to invest excess premium funds.
• Premiums: Monthly deductions for the cost of insurance (COI). Flexible contributions allow policyholders to pay above the minimum for greater growth.
• Key Features: This plan includes an Accumulation Fund with investment account options that grow tax-free. Policyholders enjoy flexible features like policy loans, withdrawals, and third-party borrowing options.
• Considerations: Investment choices require active management, which can be a drawback for those seeking a passive policy.
• Best for: Long-term planning with a need for flexible premiums and investment growth.

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4. Whole Life Insurance (Permanent with Cash Value Growth)

Whole Life provides lifetime coverage with guaranteed cash value growth, suitable for those focused on estate planning and building long-term financial security.

• Plan Structure: Fixed premiums and death benefit, with the option for shorter payment periods (10, 15, or 20 years).
• Premiums: Premiums are level for life, and policyholders can use dividends to offset costs or grow cash value.
• Key Features: Annual cash values increase with dividends (or bonuses), creating a pool for loans or partial surrenders if needed. If a premium is missed, the policy’s cash value can cover it automatically.
• Considerations: Whole Life has the highest initial cost of all life insurance types but provides predictable growth. It lacks the investment flexibility of Universal Life but offers solid, dependable value.
• Best for: Lifetime protection with built-in savings, ideal for those seeking both stability and tax-advantaged growth.

Next Steps: Your Life Insurance Journey

Choosing the right life insurance plan is a significant decision, one that should be informed by both your financial goals and personal circumstances. With many options available, it’s essential to have a licensed professional to guide you through the nuances and help you find a plan that truly aligns with your needs.

At Garrett Agencies, our dedicated advisors are here to help you navigate your life insurance options. Whether you're looking to protect loved ones, grow tax-advantaged assets, or build lasting security, our team will provide the expertise you need to make an informed choice.

Contact Garrett Agencies today to speak with a licensed advisor who can tailor a life insurance plan that’s right for you. We’re committed to helping you make the best decision for your future—ensuring peace of mind and financial security for the ones who matter most.