Term or permanent: how to choose

The structural difference

Term insurance rents you coverage for a defined stretch of time. Buy a 20-year term at 40 and you are covered until 60, at a price fixed for those two decades. If you are alive at 60, the coverage either stops or continues at a much higher price.

Permanent insurance is built so that the coverage does not run out. Whole life, universal life and Term to 100 all take different routes to that outcome, but the shared property is that the policy is intended to still be there at 90 or 100.

That single difference explains the price gap. An insurer selling a 20-year term to a healthy 40-year-old is fairly confident it will not pay a claim, because most 40-year-olds reach 60. An insurer selling permanent coverage to the same person is confident it eventually will, and prices accordingly.

What that looks like in practice

The question that actually decides it

Not “which is better value” but “does this need have an end date?”

Some needs clearly do. A mortgage is paid off. Children become independent. A business loan is repaid. If you can name the year the problem disappears, term matches the shape of the problem, and buying permanent coverage for it means paying for decades of protection you no longer need.

Some needs clearly do not. If your estate will owe capital gains tax on a cottage whenever you die, that liability exists at 70 and at 95. Term coverage bought at 55 will not be there at 92, and buying new coverage at 92 is not realistic. That is a job term cannot do at any price.

Some needs are genuinely uncertain, and that is where the honest answer is that it depends on things you cannot know yet.

Where permanent gets oversold

Cash value is the feature that generates most of the sales pressure, and it deserves a clear-eyed look. Some permanent policies accumulate a pot of money inside the contract that grows on a tax-sheltered basis and that the owner can access while alive.

That is a real feature. It is also frequently presented as a reason to buy permanent coverage instead of investing separately, which is a comparison that only works in specific circumstances. In the early years, most of what you pay goes to the cost of insurance and to acquisition costs, so cash value builds slowly. Anyone whose RRSP and TFSA room is not yet used generally has simpler options available first.

The full argument is in is permanent life insurance a good investment. If a proposal leans heavily on projected values, read that page before signing.

Where term gets undersold

The criticism of term is that you can pay for twenty years and get nothing back. That is true, and it misreads what you bought. You bought the certainty that if the worst had happened during those twenty years, your family would have been fine. That the worst did not happen is the good outcome, not a wasted purchase. Nobody complains about a year of house insurance that ended without a fire.

The more legitimate concern is the end of the term. A term policy that lapses at 60 leaves you looking for coverage at an age when it costs considerably more, and possibly after a health change that makes it harder to get. That is a real risk, and the way to manage it is to pay attention to the conversion right while it is still available rather than after it expires.

A pattern that works for a lot of people

Buy the term coverage the current situation calls for, at a length matched to when the need ends. Make sure the policy is convertible, and note the deadline on that conversion right somewhere you will actually see it. If, in ten or fifteen years, a permanent need has appeared and your health has changed, the conversion right lets you move some or all of the coverage across without new medical evidence.

That approach keeps the cost proportionate to the need now and keeps the door open later. It is not the right answer for everyone, particularly for people with an existing estate liability or a business arrangement that needs permanent funding from the start, but it covers a large share of ordinary situations.

Do not decide this from a table

Both products work. Which one is right turns on your obligations, your age, what you have already saved, and how long the problem you are solving actually lasts. A table cannot see any of that.