Whole Life Insurance

Published December 9, 2022
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What is whole life insurance and how does it work?

If you want insurance coverage that will last your whole life, you may want to consider whole life insurance.

Whole life insurance is a type of permanent life insurance that covers you for your entire lifetime. This life insurance will never end unless you cash in the policy or don’t keep up with the premium payments. If you have whole life insurance, it can provide a lump-sum, tax-free payment to your beneficiaries upon your death to pay for final expenses, taxes on registered assets and capital gains among other things.

Whole life insurance includes several features that designate how it works.

Whole life insurance features:

  • Cash value – Your whole life insurance policy will usually have a guaranteed minimum cash value in case you want to borrow against it or cash it out, as long as you pay premiums on time.
  • Tax-deferred growth – The cash value of permanent whole life insurance grows tax deferred, meaning you will not pay taxes on it unless you cash it out.
  • Cost – Typically, whole life insurance premiums are higher than term life insurance policy premiums on the front end, but when you consider that term insurance sees significant increases in premiums when renewed, whole life can be less expensive over the life of the coverage.    
  • Guaranteed premium – Your premium will not increase for life.
  • Choice of plans – When you purchase whole life insurance, you may be given the option to choose a participating or non-participating policy.
    • A participating policy offers both guaranteed and non-guaranteed benefits. Payment of death benefits is a guaranteed benefit if premiums have been paid and any loans against the policy have been repaid. As a policyholder, you may also receive non-guaranteed benefits, such as a dividend or bonus, based on the earnings your insurance company receives from investing a portion of the premiums you pay for your policy. You’ll have several options on how you can choose to receive your dividends.
    • A non-participating policy provides a guaranteed death benefit; it typically does not pay dividends per se, but such a policy may pay a surplus of payment as a performance credit or bonus.  Plan premiums are usually less expensive than participating plan premiums.
  • Dividend options – If you have a whole life insurance participating policy, you may receive your dividends in the following ways:
    • Cash – Although this will not affect your policy’s immediate cash value, choosing this option means the dividends are not purchasing paid up additions, which is what grows the death benefit and cash value of your policy.  Taking dividends in cash can also result in a taxable policy gain.
    • Deposit with interest – If you choose this option, your dividend will be deposited into your whole life insurance account enabling you to earn interest on it.
    • Apply to current premiums – You can reduce your out-of-pocket payments on your whole life insurance plan by choosing this option.
    • Purchase additional permanent death benefit insurance – You can increase the value of your policy by choosing this option.
    • Use dividends to purchase amounts of term life insurance – If you want the benefits of both types of plans and you want to increase your life insurance, you may wish to add term life insurance to your portfolio.

At Edward Jones, you’ll find a wide selection of whole life insurance plans

We offer coverage options at various guaranteed payment periods, including:

  • Life pay:
    • Issue ages are 0 to 85 for single life and 18 to 85 for joint coverage.
    • Premiums are set and guaranteed for life.
    • Premiums are payable until age 100 for all coverage options.
  • 10 pay:
    • The basic insurance amount is paid-up after the 10 years.
  • 20 pay:
    • Issue ages are 0 to 80 for single life and 18 to 80 for joint coverage.
    • Premiums are set, guaranteed for life and paid over 20 years.
    • The basic insurance amount is paid-up after the 10 years.

Edward Jones also offers both single and joint coverage plans

Flexibility exists in the design of the life insurance policy and premium payments to address a range of planning needs.

  • Single life
    • Insurance coverage is based on one insured person and pays out if they die.
  • Joint first-to-die
    • Coverage is based on two insured persons.
    • The issue ages are based on the joint issue. Joint age represents the combination of each insured person’s insurance age, sex and smoking status. Joint ages differ by coverage type.
    • The death benefit is payable on the first death of the insured persons.
    • Depending on the policy, after the death of the first insured, the survivor may have the ability to apply for a new insurance policy within 90 days without providing new medical evidence of insurability.
  • Joint last-to-die – premiums to second death
    • Coverage is based on two insured persons.
    • Issue ages are based on joint age. Each person under this coverage option must meet the minimum and maximum ages applicable to the guaranteed premium payment option selected.
    • The death benefit is payable on the death of the second insured person.
    • Premiums continue to be payable after the first insured person’s death.
  • Joint last-to-die – premiums to first death
    • Coverage is based on two insured persons.
    • Issue ages are based on joint age. Each person under this coverage option must meet the minimum and maximum ages.
    • The death benefit is payable on the second death of the insured persons.
    • Premiums for the basic insurance coverage end at the first death of an insured person.
    • Premiums for optional benefits that apply to the surviving insured person continue to be charged after the first death.
    • This benefit is only available on certain plans.

With Edward Jones, you are also able to customize your whole life insurance plan by adding optional riders, which enables you to customize the design of your life insurance policy to meet your additional needs.

Are there other types of permanent life insurance?

Universal life is another common type of permanent life insurance.

How does term life insurance compare to whole life insurance?

Term life insurance is life insurance that covers a specific term of your life, usually 20 years or fewer, whereas whole life insurance covers you for your entire lifetime.

Factors to consider when you’re thinking about buying life insurance

First and foremost, consider your needs. Talk with your advisor to explore the different options available to help you achieve your desired goals.

Although it’s difficult and unpleasant to think about and plan for your own untimely death, it will prevent much heartache and difficulty for your loved ones if you ensure their financial security is protected.

Also, remember that your life insurance needs may change over time. If you are in your 30s and/or 40s and have children in school, your needs will be different than if it is just you and your spouse or partner who are retired. That’s why it’s important not just today, but as time progresses to regularly meet with your advisor to review your life insurance policy and needs.

In fact, the Financial Consumer Agency of Canada suggests that you also evaluate your life insurance coverage as the circumstances in your life change, including:

  • Getting married.
  • Filing for divorce.
  • Having a new baby.
  • Taking on additional debt.
  • Opening a business.
  • Losing your job or retiring.
  • Supporting aging parents.
  • Sending a child to post-secondary school.
  • Following the death of your spouse/common-law partner.
  • Planning for lifelong support for dependents who have special needs or have become disabled.
  • Any other major life-changing events, such as inheriting money.

Benefits of whole life insurance

Whole life insurance offers many benefits.

  • Whole life coverage – As long as you keep your policy in force, you know that you have life insurance coverage until you die. It’s also guaranteed not to go down unless you choose to withdraw money or use cash values to pay premiums. Whole life insurance is unlike term life insurance, which only provides life insurance for a set number of years or to a certain age.
  • Death benefits proceeds – Payment of life insurance proceeds at death are tax-free, but certain choices that the policy owner may make during their lifetime, such as if they access the cash values, or how they use the policy dividends, may have taxable implications. This tax-deferred growth can help your policy grow in value.
  • Cash value – Should you need cash, you can borrow against your policy or cash it out if necessary.
  • Loans – Whether or not a policy loan is taxable is dependent on several factors. You will want to discuss tax implications with your advisor before proceeding with a policy loan.
  • Guaranteed premium – Your premium will not go up or down, regardless of inflation or anything else going on in the market.
  • Fixed rate of return – You should know how much interest your account is earning, which is helpful when creating your long-term financial strategy.
  • Choice of policies – This choice allows you to weigh which type of plan will work better for your circumstances and budget. If you choose a participating plan and opt to have those dividends invested in your whole life insurance account, it will increase the final payout to your beneficiaries on your death.

Reasons whole life insurance might not be right for you

Although whole life insurance has many benefits, it may not be right for everyone. Whole life insurance premiums typically cost more than term life insurance policies because they offer a fixed cost for life, with a growing death benefit and a build-up of cash values within the policy.

We can help

An Edward Jones financial advisor can help you review your current life situation and help you understand the many options available to meet your needs. Your financial advisor can also help you set a schedule to regularly assess and update your financial strategy, including your life insurance coverage, to roll with the changes in your life.

Important information:

Insurance and annuities are offered by Edward Jones Insurance Agency (except in Québec). In Québec, insurance and annuities are offered by Edward Jones Insurance Agency (Québec) Inc.