What is the difference between term and permanent life insurance?

• Term = temporary protection, lower initial cost, renewal premiums rise sharply with age.
• Permanent = lifetime protection with a cash value component in most designs.
• Many term policies are convertible to permanent coverage without new medical evidence, within limits.
• Neither type is universally better; the right structure depends on how long the need lasts.
• Both require underwriting, and coverage is never guaranteed to be approved.

You choose a coverage amount and a term. Premiums are typically level for the term. At the end of the term most policies renew automatically at a substantially higher rate, or expire at a stated age. Term is commonly matched to a defined obligation: a mortgage, dependent children, a business loan or the years remaining to retirement.

Permanent policies are priced to last a lifetime. Whole life offers guaranteed values with premiums set by the insurer; participating whole life may also credit policy dividends, which are not guaranteed. Universal life separates the insurance cost from an investment account and allows flexible premiums within limits, shifting more risk and monitoring responsibility to the policyholder.

Cash value in a permanent policy generally accumulates slowly in early years because of insurance costs and commissions. It may be accessed through withdrawals, policy loans or a third-party loan, each with different tax and policy consequences. Accessing cash value reduces the death benefit unless repaid.

Ask how long the need lasts. A 25-year mortgage and young children point to a defined period. A permanent tax liability at death, a special-needs dependant, or a business succession obligation points to a lifetime need. Many Canadian households layer both: a large term policy for peak family years plus a smaller permanent policy for lifelong obligations.

A 38-year-old with two children and a mortgage might hold a 20-year term policy sized to income replacement and debt, alongside a smaller permanent policy intended to remain after the term expires. When the mortgage ends and children are independent, the term coverage can lapse while the permanent policy continues. Suitability depends on budget, health, and family goals.

• Permanent policy illustrations use assumptions; dividends and credited interest are not guaranteed.
• Cancelling a permanent policy early can produce little or no cash value.
• Conversion privileges have deadlines, usually tied to a stated age or policy anniversary.
• Premiums depend on underwriting: age, health history, smoking status, occupation and travel.

• 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