Whole vs Universal vs Permanent Life Insurance

March 15, 2023


Purchasing life insurance is not a one-and-done decision. See, with life insurance, there’s not just one single form of life insurance that you can purchase but rather multiple. The first decision you’ll have to make is whether you want to go temporary or permanent. If you’ve decided the latter, well, there’s still some choices you’ll have to make. While with temporary life insurance, also called term life insurance, the main decision you’ll have to make is what length of term you want your policy for, permanent life insurance gets a little more complex. You’ll have to decide what form of permanent life insurance you want: universal or whole.

Both of these are a type of permanent life insurance (to an extent), so permanent life insurance isn’t actually a third form of life insurance you’ll need to look into. But, once you choose a permanent form of life insurance, you’ll need to examine the differences and benefits between universal and whole and make a decision from there which is best for your family and what makes sense.

Why choose permanent life insurance over temporary or “term?”

Permanent life insurance is typically a choice for those who have stronger financial health and the capability to pay more for their premiums throughout the duration of their life or for a fixed term of 10-20 years, however your policy is set up. Here are some reasons why some people might opt to purchase a permanent life insurance over a term one:

  • To secure your spouse for their retirement, even if more money is spent during the years of your retirement than you initially expected to spend.
  • To provide financial security for things like estate taxes and capital gains in order to allow your beneficiaries or dependents to keep all your remaining property and assets upon your death, so they aren’t forced to sell anything to pay for the remaining taxes.
  • To ensure that your dependents have money left behind, which will be tax free. It may also be probate free so long as your beneficiaries are set up the correct way. You can designate the money left behind, leaving it for education funds or otherwise.
  • To include you beneficiary money as part of a tax planning strategy, which allows it to be transferred to an RRSP and pass on, tax-free, to a designated beneficiary without any executor or probate fees.
  • To provide money for a favoured charity upon your death.
  • You want to maximize on your existing pension plan. Some people will need to choose between setting up their pension so their spouses will receive a portion of it, but having a life insurance plan can ensure a pool of capital left behind for your surviving spouse.

As you can see, there’s plenty of uses for a permanent life insurance policy over that of a temporary one. In some cases, you won’t even have to pay for a permanent life insurance policy for your entire life – just a set amount of years until the policy is fully paid up.

Why choose whole life insurance?

Whole life insurance has fixed premiums that are locked in upon purchasing your premium and can never rise. So long as you continue to make payments throughout your life or the set period of payment, you can depend on your life benefits being paid out to your beneficiaries upon your death.

With whole life, your death benefit will never decrease so long as you can continue to make payments. Your family is guaranteed to always receive the amount your set your policy for at minimum. There may be the potential for any dividends to increase how much coverage you have with time. Whole life presents reliability, which is sometimes the deciding factor for many.

In a nutshell, whole life:

  • Accumulates a cash value, which grows tax-deferred and can be used for whatever you choose.
  • Offers fixed premiums, which are guaranteed to never increase throughout the duration of your policy and life.
  • Has some growth potential via dividends. These can also be used to pay premiums, add to the cash value of your policy, and potentially even just be taken as cash.

Why choose universal life insurance?

Unlike whole life, universal life has no fixed premiums and there’s flexibility on when you can make your payments. You make alterations to your policy whenever you choose and even to your premiums, within limits, as your situation changes and evolves. Your policy has the potential to end unless you adequately fund it, especially as the death benefit is not guaranteed. But, all the same, universal life is guaranteed to provide the most long-term protection for your budget.

Basically, the benefits of a universal life policy are:

  • That it costs less than other forms of permanent life insurance. They offer the most benefit for your dollar.
  • They can be flexible in fitting your needs as they are now, and in the future. You can work with a broker to determine how to adjust your coverage with time.

What should I choose – whole or universal life?

Both universal life and whole life build a cash value. For many, this is important as it helps to save for the future and offers a safety net during life. You are permitted to borrow against the cash value component of your policy to help fund any unexpected expenses. This allows prepares you for any unexpected situations in the future.

But, ultimately, it depends on your circumstances and what your desires for the future may be. Work with a life insurance broker from Excalibur Assurance to determine what you should choose and what makes most sense for your financial present and financial future.