When starting your financial strategy in Canada, one of the most fundamental decisions is choosing between Term Life Insurance and Permanent Life Insurance. Understanding how permanent coverage works can help you protect your family while building tax-advantaged wealth over time.
1. What is Permanent Life Insurance?
Unlike Term Life Insurance (which covers a specific period such as 10, 20, or 30 years), Permanent Life Insurance is designed to provide lifelong coverage as long as premiums are maintained under contract terms.
2. How Cash Value Works
A distinctive feature of permanent policies—such as Universal Life—is the cash value component. A portion of your premium payments goes into an internal savings/investment account that grows tax-advantaged under Canadian tax regulations.
3. Key Tax Advantages in Canada
The growth within the cash value account is exempt from annual taxation while inside the policy. Additionally, the final death benefit paid out to your designated beneficiaries is received 100% tax-free.