Choosing the right life insurance is an important decision, as it ensures the financial security of your loved ones in the event of your death. However, it can be difficult to navigate the differences between term life insurance and permanent life insurance. Each type of policy offers advantages and disadvantages that are crucial to understand in order to make an informed choice. In this article, we will review the main differences between term and permanent life insurance in Quebec, to help you determine which option best suits your needs and your budget. 

If you already know which type of life insurance is right for you, we invite you to request a life insurance quote on ClicAssure. You will receive quotes from different insurers and can choose the most advantageous premium for you. These insurers can also answer any questions you may have about life insurance.

What is Term Life Insurance?

Term life insurance, often called “term insurance” or “term life insurance” in English, is a coverage that protects the insured for a specified period. This period may vary depending on the contract, but most commonly lasts 10, 20, or 30 years. If the insured passes away during the term of the contract, the insured amount is paid out to the beneficiaries. However, once the term is up, if the insured is still alive, the coverage ends or must be renewed, often at a higher cost. 

Advantages of Term Life Insurance

1. Lower initial cost: Term life insurance premiums are generally lower than those for permanent life insurance. For a young parent or a couple just starting out, it’s often the most affordable solution to ensure sufficient financial protection.
2. Flexible duration: You can match the length of your policy to your specific plans and responsibilities. For example, if you have young children, you might choose a 20-year term to cover them until they become financially independent.
3. Coverage for a specific need: Term life insurance is often used to cover a mortgage or a student loan. This way, in the event of death, the amount owed can be repaid without leaving a financial burden on loved ones. 

Disadvantages of Term Life Insurance

1. Coverage expiration: At the end of the term, coverage ends. If you want coverage for a longer period, you will need to renew your policy, which will likely be more expensive due to your age and health status.
2. No cash value: Unlike certain permanent insurance policies, term life insurance does not offer any cash value. You will not get any money back if you terminate your contract early or when it expires.
3. Coverage limited to the chosen term: If your personal, family, or financial situation changes, term coverage may no longer be suitable in the long run, as it is not designed to cover you for your entire life. 

What is Permanent Life Insurance? 

Permanent life insurance, as its name suggests, provides coverage for the entire lifetime of the insured, as long as premiums are paid. It generally includes a savings or cash value component. Several types of permanent insurance exist, such as Whole Life Insurance or Universal Life Insurance. 

Advantages of Permanent Life Insurance

1. Lifetime coverage: As long as you meet the payment terms, the policy remains in effect until your death. Your loved ones will therefore receive the insured amount regardless of your age at death.
2. Cash value or savings component: A permanent policy can accumulate cash value over the years. Depending on the terms of your contract, you can borrow against this value or withdraw it (subject to certain conditions and tax implications).
3. Stable premiums: In many permanent life insurance contracts, premiums remain fixed for your entire life. You do not have to worry about rate increases as you get older. This aspect is very advantageous, especially for a very young family with a permanent life insurance policy. Premiums for permanent life insurance are quite low for young, healthy individuals. For example, someone who purchased a life insurance policy at 20 years old for $35 per month will continue paying only $35 per month at age 60, whereas a 60-year-old new policyholder might pay a much higher premium.

Disadvantages of Permanent Life Insurance

1. Higher premiums: Permanent life insurance usually costs more than term life insurance. For young families or those on a tight budget, it may be difficult to justify a long-term investment.
2. Complexity: Between the different types of contracts (whole life, universal, etc.) and the savings component, it can be more challenging to navigate. This often requires guidance from a financial advisor.
3. Long-term commitment: In most cases, stopping payments or canceling the policy can result in financial losses, especially if you end your policy in the first few years. 

How to Choose Between Term and Permanent Life Insurance

1. Assess your financial needs: Start by drawing up a picture of your obligations—mortgage, debts, children’s education costs, etc. If you know your debts will be paid off in 10 or 20 years and you have no other major financial commitments, term life insurance could suffice. On the other hand, if you want to leave an inheritance, cover funeral expenses, or ensure a death benefit for life, permanent life insurance is likely preferable.
2. Consider your budget: Since premiums are more affordable for term life insurance, this type of coverage remains a smart choice for those with limited financial resources or who don’t expect to need coverage beyond a set period. Conversely, if you can afford higher premiums and want lifetime protection, permanent life insurance may be more appealing.
3. Think about the future: Life changes, and so do your financial needs. If you are young and plan to start a family, buy a home, or launch a business, term life insurance can address your specific needs for a given period. However, if your goal is to pass on an inheritance, cover potential estate tax costs, or benefit from an accumulation of cash value, a permanent life insurance policy offers undeniable advantages.
4. Compare conversion options: Some term life insurance policies offer the option to convert to permanent life insurance. This is worth checking if you’re undecided between the two, since you can first opt for the more economical solution and then convert if your situation changes. 

A Few Scenarios to Illustrate the Choice

• Young parent on a tight budget: Your main goal is to protect your children in the coming years while keeping premiums affordable. A 20-year term life insurance policy may suffice in this case.
• Business owner seeking solid protection: You want to ensure the continuity of your business and avoid your heirs being forced to sell assets to pay taxes upon your death. Permanent life insurance can give you the peace of mind you need.
• Retiree wanting to leave a legacy to grandchildren: If you’re retired or close to retirement and already have a stable financial situation, permanent life insurance can allow you to leave a substantial capital to your heirs while benefiting from a favorable savings vehicle. 

Conclusion

The choice between term life insurance and permanent life insurance depends primarily on your financial situation, your long-term goals, and your ability to pay higher or lower premiums. In Quebec and across Canada, there are many life insurance products available. It’s crucial to take the time to analyze the various options before committing. Term life insurance generally meets specific short- or medium-term protection needs, while permanent life insurance is more suitable for those looking for lifetime coverage and the possibility of accumulating value.