Term vs permanent life insurance
Term life insurance pays a fixed death benefit if you die during the term (typically 10, 20, or 30 years), with no payout if you survive. Permanent insurance (whole life or universal life) covers you for life and includes a cash value component you can borrow against. The trade-off is brutal: a 35-year-old non-smoker pays roughly $25 a month for $1 million of 20-year term, versus $700+ a month for $1 million of whole life. The bundled investment inside permanent insurance is, after fees, almost always beaten by term plus an ETF.
Buy $1 million of 20-year term at $25 a month for 20 years, total premiums $6,000. Or buy $1 million of whole life at $700 a month, total premiums $168,000 by year 20, with a cash value of perhaps $90,000 after 20 years. Take the $675 a month difference and invest in a TFSA at 7%, you end with about $345,000. More cover for 20 years, more cash, half the complexity.
Buying whole life because the insurance agent calls it ‘forced savings’. It is forced spending. Pure cost of insurance plus huge embedded fees, sold by people compensated more on permanent than on term. If you want forced savings, set up an automatic TFSA contribution.
A 60-second lesson on this, with a worked drill, lives inside the Finlo app. Free, forever, on the basics.