Whole life insurance is just what it sounds like: a policy you buy into for the duration of your lifetime. And if the year 2020 was anything, it was a lesson in expecting the unexpected. (Seriously, who could have predicted that a masked trip to the grocery store would be the highlight of your social calendar?) While we all hope the years to come will be better, nothing says foresight like knowing your options when it comes to life insurance. Here’s what you need to know about whole life insurance.

What is whole life insurance?

Whole life insurance provides coverage for life at a fixed premium, meaning the cost of your individual payments never changes. This is a big advantage over term insurance, for which the cost of your premiums is likely to change when you renew for another term. Another plus with whole life insurance is that you never have to re-qualify for coverage, so even if you develop a condition, the cost of your premiums won’t increase. 

And here’s another good thing about a whole life policy: It can generate a cash value over time. This means you may opt to cash out your policy if you decide at some point that you no longer require it. This is a marked difference when compared to term life insurance, where if the policy is cancelled, you would receive no payout. (Want to know more? Read our more in-depth article that compares insurance types: Term vs. whole life insurance: Which type of policy is best?)

There also may be more extensive options for riders. (Riders allow additional benefits to be added to an insurance policy that address specific needs and concerns. They often require an additional premium payment.) The coverage options available as a rider, such as child death benefit, may not be available on a term policy. However, you can still buy critical illness and disability with either policy.

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What’s the difference between whole and permanent life insurance? 

It’s not so much that they’re different. “Whole life is permanent insurance,” says Jason Roy, senior managing partner, Adkins Financial in Brantford, Ont. There are two basic types of insurance—term and permanent—and whole life is a subset of permanent insurance, meaning the coverage doesn’t expire, provided the premiums are paid. Term insurance runs for a set amount of time—say, 10 or 20 years—and the premium may change when you renew, since your risk of death increases as you age. However, with whole, adds Roy,  your premiums are locked in. There are other types of permanent insurance, such as universal life and participating whole life. (As mentioned above, check out Term vs. whole life insurance: Which type of policy is best? for more info.)

How much life insurance do you need?

This depends on the various expenses you’d like covered after you’re gone, such as funeral and burial, day-to-day living costs for family members, and debts that will need to be paid off, like a mortgage. An insurance broker can help you with a life-needs analysis, but you can also get a pretty good estimate using an online calculator. 

On the other hand, you may not actually need life insurance. If you’re single and have no dependents, and you have enough money to pay your remaining debts and funeral expenses, it may not be worth it. Alternately, if you do have dependents but have enough assets to support them after your death, you may opt out of life insurance altogether.

What factors into choosing or building your policy? Current savings, debt, children, funeral plans—all of these contribute to which policy you require. Then there are additional coverage options with riders, such as critical illness, disability, child death benefit and more. 

The younger you are when you obtain whole life insurance, the less expensive the premiums will be. By way of example, Roy says if you’re a single 25-year-old who rents, you may not need coverage, but when you get married, buy a home and have children, the need for life insurance increases. He adds that although whole life insurance is an option, term life insurance might be a better option as you pay off your mortgage and the amount you owe decreases.

Your age and your overall health when you sign up for an insurance policy will determine your eligibility and your rates. “The younger you are usually [means] the healthier you are, so the cheaper the premium will be,” says Roy. For example, if you were to purchase a whole life insurance policy at age five, your rates would remain the same even when you’re 80. But if you purchase it at age 80, you’d be paying upwards of $1,500 a month for the same policy.

How much does a whole life insurance policy cost in Canada?

This really depends on a variety of factors, including your specific needs in a policy and your stage of life. While it’s too complicated to know how much you’d pay as an individual without a detailed quote, it’s possible to calculate a hypothetical estimate. For men, a $250,000 benefit amount can be obtained in your mid-30s for $161 per month. For women of the same age, the same benefit is approximately $139 per month. However, if you start a whole life policy in your 80s, the price can be upward of $1,500 a month. For transgender and non-binary individuals, typically it’s based on the sex identified at birth. 

Benefit amount Sex Age Monthly premium
$250,000 Male Mid-30s $161
$250,000 Male Mid-40s $266
$250,000 Female Mid-30s $139
$250,000 Female Mid-40s $221

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Do you need a physical for whole life insurance?

Whether or not you require a physical exam for whole life insurance is determined by your age, the amount of coverage requested, and if there are any underlying conditions disclosed. Each company uses its own criteria to as to whether or not you would need a medical. But not having one could affect your coverage amount, as you will see in the below chart of industry averages, according to Adam Mitchell, president of Mitchell & Whale Insurance Brokers Ltd., in Whitby, Ont.

Age Coverage amount Physical
45 and under $499,999 No physical
46 to 50 $249,999 No physical
51 to 60 $99,999 No physical
61 and up Any amount Always required

Don’t want to undergo a physical? Then you’ll have to request an amount of coverage that doesn’t require one, or opt for a policy in which it’s specifically indicated that a physical isn’t required. Whether you’ll be asked for a physical depends on the insurance provider and its initial assessment of your risks, according to Roy. But this isn’t always a bad thing. “If you’re above average health, your premium can go down. Your health is the number-one factor,” he says.

Due to regulations that came about as a result of the COVID-19 pandemic, some insurance providers have eased the requirements for physicals. 

Can you be denied for a whole life insurance policy?

There are no official statistics for people having been denied insurance coverage. But it does happen, says Roy. “I’ve had a couple of clients denied in my 20 years of working in finance and life insurance. It doesn’t happen very often. It’s more likely the client is rated high-risk and then the client decides to not take the policy.” 

General overall health, underlying conditions, and minor conditions that have gone untreated (which show you haven’t taken care of yourself) are a few of the reasons you could be denied. Other situations that could increase your chances of being declined include requesting coverage that far exceeds your needs without a valid explanation, or being a participant in extreme activities that may cause death. (True, there is only one Richard Branson, but if you have a hobby or a job that puts your life at risk, it may affect your coverage.)

If you are denied coverage, you could choose to self-insure. This involves putting away a certain amount of savings per month with the explicit intention that it to be used for expenses when you pass away. But that’s not always a financially sound plan. “People do say, ‘I could put away $25 a month instead of paying $25 for a life insurance policy,’ ” says Roy. “But if something happens to you tomorrow, an insurance policy is going to pay out $500,000. You put away 25 bucks for the past year and you’ve got $300.” Instead, of saving money, he recommends a tax-free savings account. “But you don’t know when you’re going to pass away,” he adds—so the premiums could be worth it. 

All of which is to say, if you want to secure your own peace of mind (and that of your loved ones) ASAP, it’s best to apply for whole life insurance while you’re still young, share honest information with your broker or insurance company, and then weigh your options.

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