Term Vs Permanent Insurance
Whether you’re looking for the affordability of term insurance or the lifelong protection of permanent insurance — or a combination of both — we have options to fit your needs and budget.
Understanding the difference between permanent and term life insurance will help you choose the protection you need – and prevent regrets in the future.
What is the difference between term and permanent life insurance?
The table below compares the features of each type of life insurance. So, put on your ‘long-term’ glasses and consider what you expect from life insurance today and decades from now.
|Term Life Insurance||Permanent Insurance|
|What is it for?||Temporary protection from the financial impact of death||Lifelong protection from the financial impact of death
Combining protection with tax-advantaged cash value growth
|Who is it for mainly?||Young families and homeowners with a mortgage|
|Adults with a long-term perspective
People who already make full use of registered investment accounts such as RRSPs and TFSAs
|What are the advantages?||It's initially inexpensive, if you're young.|
You can buy lots of coverage.
It's easy to understand.
|Guaranteed lifetime protection continues even if your health fails
The cost is guaranteed to never go up (with most types of permanent insurance).
Later in life, it's less costly than term insurance.
It provides tax-advantaged cash value growth opportunities for people whose RRSPs and TFSAs are topped up.
You can cash in or borrow against its accumulated value.
|What are the disadvantage?||Coverage is temporary; the protection ends when the term ends (if you don't renew).|
The cost goes up if you renew when the term ends (usually after 10, 15, 20 or 30 years).
There's no cash value to borrow against or cash in.
|For young people, it's more expensive than term insurance.
Key benefits aren't obvious; professional advice will help you use it effectively.
|When is it most cost effective?||When you're young|
When you need only temporary protection (e.g., until your mortgage is paid off or children are no longer financially dependent)
|Later in life
When you have built up cash value in the policy
When you have a sizable estate to pass along to heirs or charities
If you're in a higher tax bracket
|Can you convert it to another type of Insurance?||Yes||No|
|Can it supplement the Insurance you have at work?||Yes||No|
|Things to Consider||Rising mortgage and consumer debt: You could still be in debt after temporary term life insurance stops being the cheaper option (or even becomes unavailable).|
Adult children are financially dependent on parents longer than ever, perhaps even after your term policy expires.
|The trend toward increased longevity makes this an increasingly attractive option because protection is lifelong, not temporary.|
As a financial advisor, I sometimes get calls from clients who bought term life insurance 10 or 20 years ago. They were happy with the current insurance but after 15 or 20 years is that the ‘term’ of their term insurance is about to expire and if they want to renew their coverage, the cost is 3 or 4 times what they’ve been paying.
They’re not happy, but that’s how term life works. Most times it is explained that to them when they purchase insurance, but now they’re facing reality. Sadly, some cancel their term policies and lose that protection, so they’re leaving their family’s finances at risk
What’s the best way to protect your family and achieve your other financial goals?
Depending on your circumstances, your choice could be either – or both. And there are more ways permanent insurance can help you that I haven’t addressed here. When you’re buying life insurance, you’ve got to think long-term. Ask a professional financial advisor to help you understand the full implications of your available options, and to help you make the best decision for your situation.