*As published in the March 2012 issue of FinanceWorks.ca

While term insurance offers an economical solution in the short-term (see ”Can life insurance be affordable?”), in the long run, premium costs rise exponentially. For those who can afford higher initial premiums, permanent insurance can give them a better long-term value.

Permanent life insurance, like the name implies, covers you on a permanent basis. Unlike term insurance, the cost stays the same for life. Over time the cost of term insurance increases above the cost of permanent insurance. Eventually the total premiums paid for term will surpass that of permanent insurance.

Permanent insurance also offers a “quick pay” option, which means you can pay for the full policy over a shortened period of time, instead of drawing out payments over your lifetime. The most common quick pay period is 20 years (“20 pay”). After paying the premiums for that period, the policy is fully paid for and the policyholder is covered for the remainder of his or her life.

Whole life

  • Life insurance company sets the returns, the premiums, and cash value of the policy
  • Cost of policy (premiums) do not change
  • Good for those with a steady/predictable cash flow
  • No management of investments required (exception with participating whole life)


  • Returns and cash value are dependent on the growth of the investment chosen by the policyholder
  • Policyholder can chose his or her payment amount
  • Is considered to be more flexible
  • Good for those with a variable cash flow
  • Policyholder has control over their investments
  • Good investment returns ­— bigger insurance policy
  • Poor investment returns — policyholder may have to add funds to the keep the policy active

Available as whole life or universal life, permanent insurance usually carries a cash value that grows over time. The cash value can be withdrawn or borrowed against, allowing the policy to be used as a monetary reserve in the case of an emergency, an investment vehicle or a tax-planning tool.

The cash reserve can also serve as a safeguard in case the policyholder’s cash flow suddenly drops, making the premium payment difficult to maintain. The cash reserve can be used to cover the premiums until the policyholder can resume the payments.  Of course, the reserve can only continue covering the premium while it has a cash value, and the value of the policy will be lower when payments are resumed.

Not everyone can afford to pay $2,000+ per year for insurance coverage, but for those who can, the rewards are well worth it. Not only are the costs over time lower, there is a slew of additional benefits that can be used to structure a healthy overall financial plan.