How does permanent life insurance work in Canada?

• Coverage does not expire at a set age if the policy is funded as required.
• Whole life provides guaranteed cash and death benefit values; participating policies may add non-guaranteed dividends.
• Universal life separates insurance cost from an investment account with owner-directed options.
• Cash value is usually minimal in the first several years.
• Underfunded universal life policies can lapse if account value cannot cover rising insurance costs.

Premiums are set by the insurer and typically level. The policy carries a schedule of guaranteed cash values. Participating whole life shares in the insurer's participating account results through policy dividends, which are declared annually and are not guaranteed. Dividends may be taken as cash, used to reduce premiums, or used to purchase additional paid-up coverage.

Universal life is more transparent and more flexible: you can vary deposits within limits, and the account value is invested in interest options or index-linked accounts. Insurance charges are deducted from the account. Flexibility cuts both ways — if deposits are too small or credited returns disappoint, the policy can require higher funding later or lapse.

Owners may withdraw, take a policy loan, or assign the policy as collateral for a bank loan. Each route has different tax consequences and each reduces the death benefit unless repaid. Illustrations that show ongoing access to cash value rely on assumptions that should be stress-tested at lower returns.

• Compare guaranteed columns of an illustration, not only the projected columns.
• Ask for a reduced-return illustration before committing to a long-term funding plan.
• Early surrender can result in a loss relative to premiums paid.
• Policy design should match a real lifetime need, not a projected rate of return.

• Life insurance — consumer guidance — Financial Consumer Agency of Canada
• Life and health insurance in Canada — industry resources — CLHIA
• Protection for Canadian life insurance policyholders — Assuris