What are the main types of life insurance?

The first step towards protecting your family is determining the type of life insurance that’s right for you.

Are you thinking about life insurance? You’re not alone. For many Canadians, life insurance is an important part of a comprehensive financial security plan. It can help your named beneficiary, such as your family, replace the loss of your income and fulfill their future plans – such as going to university or retiring – in your absence.

But do you know what type of life insurance is right for you? And are you aware of what life insurance can do for you, beyond helping pay for a funeral and related expenses?

Here, we’ll provide a straightforward outline of the major types of life insurance available to Canadians.

Term life insurance

Term life insurance is lower-cost life insurance that protects you for a set period of time, like 10 or 20 years. When that time’s up, your coverage is renewed at a higher cost, should you choose not to cancel your coverage. You can also convert it to permanent life insurance without having to answer any questions about your health.

Because term life insurance has a lower initial cost than permanent life insurance, it’s a popular way for those just starting out to protect themselves and their families. Furthermore, because it’s usually less expensive than permanent life insurance, you may be able to purchase more coverage.

Participating life insurance

Participating life insurance, meanwhile, is permanent life insurance. That means it gives you lifelong insurance coverage, so long as you pay your premiums.

It’s called participating life insurance because the premiums you pay for your coverage, along with premiums from other participating life insurance policyowners, are deposited into a participating account. The insurance company’s professional investment team manages this account, investing in assets to increase its value.

It’s from this account that your death benefit and any potential dividends are paid. While dividends are not guaranteed, any dividends you may receive can be used to buy additional coverage, reduce your annual premium payments or be taken out as cash (though any cash values withdrawn from the policy may be subject to taxation). Footnote 1

Universal life insurance

Like participating life insurance, universal life insurance is permanent, meaning it lasts the rest of your life (again, so long as you pay the premiums). Universal life insurance combines the advantages of a permanent, lifelong insurance policy with a tax-advantaged investment component.

So, what sets universal life insurance apart? The short answer: flexibility. This kind of life insurance typically allows you to select your preferred premium schedule, the premium amount you want to pay (within legislative limits) and an investment mix that matches your unique risk profile.

What’s right for you?

Generally speaking, term life insurance is the lower cost option in the short term. But while participating and universal life insurance tend to be more expensive initially, the growth potential of the cash value of these types of policies could make them better value in the long run.

To learn more about the types of life insurance mentioned in this article, talk to your financial security advisor.


If you borrow or withdraw money from your policy, it will reduce the policy’s cash value and how much money the person (or people) you’ve designated will receive (called a death benefit).

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