More than half of Canadians understand the importance of having life insurance, according to a recent insurance poll. But did you know there’s a particular type of life insurance policy that could also help increase your wealth? Cash value life insurance policy does just that. As well as offering permanent life insurance protection, it acts as a financial investment tool to help you accumulate wealth.

Discover what cash value life insurance is, how it works, and its benefits in deciding if a cash value life insurance policy is right for you.

Key takeaways

• A cash value life insurance policy combines permanent coverage with a savings component that accumulates over time.

• Policyholders have the option to access their cash value through loans, withdrawals, or policy surrender.

• Though cash value life insurance typically costs more than term insurance, it provides lifelong coverage and potential tax-deferred growth benefits.

What is cash value life insurance?

A cash value life insurance policy has two parts: a death benefit and a “cash value” component. The death benefit is the tax-free payout your beneficiary or beneficiaries receive after you die.

The cash value component is a tax-deferred savings feature that grows over time, meaning you don’t pay tax on any growth in the cash value—unless you access the cash value during the life of the policy.

Types of cash value insurance:

There are three types of cash value insurance: whole life insurance, universal life insurance, and participating life insurance. All three combine permanent life insurance coverage and an investment component.

Whole life

Whole life insurance is permanent life insurance that provides you with lifelong coverage—as long as you pay your premiums, which remain fixed—even if your health changes. Your beneficiary will receive a tax-free payment after you die. But while you’re still living, you can access the accrued cash value for what you need—for example, debt payments, charitable donations, or education.

Universal life

Universal life insurance offers flexible permanent coverage in addition to a cash value element. You’ll receive lifetime coverage, provided you pay your premiums.

How it works is a portion of your premiums go towards purchasing life insurance, while the remainder earns interest tax-free through an investment portfolio.

With universal life insurance, you have the flexibility to choose how your money will be invested for the purpose of earning interest or a licensed insurance advisor can help choose the right options based on your goals.

Unlike whole life insurance, universal life insurance allows you to raise or lower your premiums within certain limits to keep your policy in force – which also helps make it less expensive than whole life coverage. However, lowering premiums for too long it could affect how much your beneficiary receives after you die.

Participating life

A participating life insurance policy pools your premiums, as well as those of other policyholders, into a participating account that’s managed by a professional investment team with an insurance provider.

Also known as par insurance, a participating life insurance policy may pay out dividends to you, as the policyholder, on the policy’s anniversary. Your insurance provider calculates the yearly dividend payments using a formula known as the dividend scale. That dividend could then be used to: buy more coverage, be applied to your monthly premiums, paid out directly to you each year, or held on deposit earning interest.

How does cash value life insurance work?

Compared to term life insurance, cash value life insurance can be more complicated to understand. Here’s a breakdown of how it works:

Premium allocation

With a permanent life insurance policy, you must pay monthly premiums. These premiums are allocated toward three categories. One portion of your premium goes to the death benefit, another portion goes to your insurer, and the last portion goes towards increasing your policy’s cash value.

Over the course of your policy, the funds allotted to the cash value decrease and those paid to cover your insurance increase as you age. This is because the cost of insuring a life costs more the older you get.

Cash value growth

The cash value of your policy can grow over time, but it depends on the type of policy. A whole life policy usually involves less risk because it comes with a guaranteed cash value. On the other hand, the cash value growth in universal life and participating life insurance is variable, as it depends on the performance of the stocks, bonds, or mutual funds linked to the market.

Accessing cash

It typically takes between two to five years for the cash value to grow. As it does, you may be able access cash from your policy—for any life emergencies or to help fund a major purchase—in the three ways.

Policy loan: You may be able to take out a loan against a portion of the cash value in your policy. You won’t be able to take out the entire amount because the loan balance and interest charges reduces the net cash value, effectively cancelling your policy and your coverage will end.

Withdrawals: Depending on the accumulated cash value, you may be able to withdraw a portion of the cash. It’s important to note that there may be tax implication, and your beneficiary would receive less money after you die.

Surrender the policy: When you surrender your policy, you basically cancel your policy with the insurance company to receive the full cash surrender value—minus any loans, loan interest, outstanding premiums, or surrender fees.

Your insurance company will pay you the cash surrender value, if there is any available, and your beneficiary will not receive any death payment in the event of your death. In addition to your life insurance coverage ending, some or all the money you receive may be subject to tax.

Benefits of cash value life insurance

Cash value life insurance has many benefits, including permanence. Your insurance coverage is in place for your entire life, provided you pay your premiums. This differs from term life insurance, which covers you for a fixed period, typically between 10 and 30 years.

Here are a some of the benefits of cash value life insurance:

Flexibility 

Cash value life insurance provides financial flexibility. As the policyholder, you could access funds for rainy-day emergencies, education, or retirement or estate planning. In a participating cash life insurance policy, you can use yearly dividends to help pay your premiums or increase your coverage.

Tax advantage

The cash value component of your policy grows on a tax-deferred basis. This allows your savings to accumulate faster than in a taxable account. And, if you need to borrow against the cash value component your policy, you could do so tax-free.

Growth

A whole life insurance policy provides predictable cash value growth.However, if you have a variable cash life policy, the cash value of your policy may increase or decrease depending on the performance of the type of investments you choose, which are linked to the market.

Disadvantages of cash value life insurance

While cash value life insurance has benefits, there are also some disadvantages. It’s important to understand what they are as cash value life insurance may not be the right product for you.

Complexity

Cash value life insurance policies are generally harder to grasp as they’re more complex than term life policies. You’ll need to ensure you understand the policy terms, the difference in fees, and your investment options. These all vary depending on the type of cash value life insurance policy you purchase. If you have questions, an accredited insurance broker can help.

Higher premiums and charges

Typically, cash value insurance policy is more expensive than term life insurance; in some instances, premiums can be five to 15 times higher than term life coverage. It’s important to consider how cash value insurance fits in your budget and investment goals. In addition, if you surrender your policy early (i.e., cancel your policy), you could pay significant fees, and you will lose your coverage.

Opportunity cost

With cash value life insurance, you’re generally paying higher premiums. Consider the opportunity cost compared to other savings vehicles such as a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA).

Policy lapses

As the policyholder, if you fail to pay the required premiums, your life insurance policy will lapse, meaning you will no longer be covered. In the event of your death, your beneficiary will not be eligible to receive the death benefit payout.

When to use cash value life insurance

Your decision to buy a cash value life insurance policy will depend on your unique situation and how much flexibility you need.

Long-term financial goals

A cash value life insurance policy may be suitable for individuals with long-term goals, such as retirement planning or leaving a legacy for family or loved ones.

Estate planning

With a cash value life insurance policy, you can plan for your future with confidence as the death benefit is guaranteed. After you die, the cash value life insurance policy can help with estate planning by covering estate taxes, and ensuring your beneficiary or beneficiaries receive their intended full inheritance.

High net-worth individuals

If you’re a high net worth individual, you may want to explore the possibility of a cash value life insurance policy – especially if you’ve maximized your other tax-advantaged accounts such as RRSPs and TFSAs.

Business owners

As a business owner, you may find a cash value life insurance policy useful as an executive compensation strategy, as a buy-sell agreement, or as collateral for a loan.

How to choose the right cash value life insurance policy

Choosing the right cash value life insurance policy will depend on your financial goals, personal needs, stage of life, and what you can afford.

Cash value life insurance may be beneficial if you if:

• You want life-long insurance coverage

• You have reached the limits on your other tax-advantaged accounts and want another tax-deferred savings vehicle

• You want predicable growth and a guaranteed death benefit for your beneficiary

• Plan to use policy loans in retirement for tax-efficient income

• You are a high earner or business owner and want both life insurance and an investment component

• You want to ensure more of your estate stays intact when you pass away

Assess your financial goals

Consider your financial goals. Think about what you want or need your money for. Retirement? Estate planning? Your business?

Compare policies

Choosing between whole life and universal life insurance depends on your circumstances and needs. Whole life insurance might be right for you if you want a simple plan with guarantees and fixed premiums. Universal life insurance may be ideal if you want payment flexibility and are willing to actively manage your policy.

Evaluate costs

Remember, a permanent life insurance policy is typically more expensive than a term life insurance policy. In addition, if you choose a variable cash life policy, the cash value of your policy may increase with your investments, but it may also decrease.

Work with an accredited advisor

As with most things in life, if you’re not 100% sure which insurance product is right for you, consult with a licensed advisor. They can guide you to the policy that aligns best with your overall financial plans and goals.

Is cash value life insurance right for you?

Cash value life insurance policies combine insurance coverage with savings and investment growth, which can be a benefit in long-term financial planning. While cash life value insurance policy may not be right for every Canadian, it can be a powerful tool if you have specific financial goals and can commit to lifelong premiums.

FAQs about cash value life insurance

Is cash value life insurance worth it?

Cash value life insurance may be worth it for you. The policy is in place for your entire life, if premiums are maintained, and your family and loved ones will receive a guaranteed benefit after you die.

Can I cancel my life insurance policy and get my money back?

Yes, you can cancel your policy and take the cash value, but the cash value you’ll receive will be minus any surrender charges. A surrender charge is a fee you, as the policyholder, pay when you cancel your life insurance policy.

What is the downside of cash value life insurance?

Cash value life insurance premiums tend to be higher than term life insurance premiums. In the end, you could end up paying more in premiums over the course of your life—possibly more than what your policy’s death benefit is worth.

You finally checked “get life insurance” off your never-ending to-do list and felt that little wave of relief knowing you’re covered. Congratulations! But with the cost of living climbing and the real estate market reaching record highs, it’s fair to wonder: can you have more than one life insurance policy to boost your protection? Is that even allowed?

One policy might seem like enough, especially if that coverage is through your work. But most employer plans only cover one or two times your salary — likely not nearly enough to replace your income, pay off your home, or secure your family’s future. That gap is why more Canadians are adding a second (or even third) life insurance policy for additional protection.

So, if you’ve ever found yourself asking, “How many life insurance policies can I have?” — this guide is for you. We’ll break down how multiple policies work, their benefits, and what to consider before deciding if it’s the right move for you.

Key takeaways

• Yes, you can have more than one life insurance policy in Canada. It can be a smart move to cover all your bases.

• Each insurance policy can serve a different purpose: one for your mortgage, one for your family, or one for your business.

• Having multiple policies means more to track.Do a yearly review to make sure your coverage still fits your life and budget.

• You can always add extra protection with riders, increase your coverage, or convert term insurance into a permanent plan.

Is it legal to have more than one life insurance policy?

Yes, it’s completely legal to have multiple life insurance policies in Canada. There’s no limit on how many you can hold.

It’s not uncommon for Canadians to top up their coverage to ensure their families are protected even if they change jobs or retire.

If you’ve got group life insurance through work and your own personal policy, you’re already there.

What matters isn’t the number of policies, but whether your total coverage makes sense for your income, debts, and long-term goals.

Would one insurance policy be enough to look after your loved ones if the worst happens? When you apply for new coverage, a licenced insurance advisor can help verify that your combined protection is reasonable and affordable.

Bottom line: Multiple policies are legal and they can be a practical way to ensure your coverage keeps up with your life.

Why would someone need more than one life insurance policy?

Holding multiple policies is not right for everyone, but here are a few situations where it can make sense:

1. New stage and age

Big life milestones — buying a home, having kids, changing careers — often mean bigger financial responsibilities. The policy you bought years ago might no longer be enough coverage far enough today.

Instead of replacing it, you can add another policy with a term or benefit that fits your current goals. In fact, taking out a few smaller policies could be cheaper than repeatedly bumping up the coverage on one big one.

2. Financial goals

You wouldn’t use a screwdriver to hammer in a nail — and the same goes for insurance. Different needs call for different tools. One policy might cover your mortgage, another for your child’s education, and a third replace your income. Having separate “buckets” of coverage lets you tailor protection to each goal, rather than forcing one plan to do it all.

3. Layering policies

Layering (or laddering) means stacking multiple term policies (like 10-, 20-, and 30-year terms) so your coverage decreases as your debts and needs of dependents do. It’s efficient and often a cheaper way to protect yourself as typically term life insurance costs are less if you’re young and healthy. The result? Strong coverage early on when life can be most expensive and lower premiums later as your responsibilities shrink.

4. Top up life employer insurance

Group life insurance is a great perk, but it usually ends when you leave your job. Plus, most plans only offer coverage worth one or two times your annual salary, which is rarely enough to replace your income for the next 10 to 20 years. Adding an individual policy ensures your protection follows you wherever your career goes — and that your family’s financial safety isn’t tied to your paycheque.

5. Mixing personal and business protection

If you own a business, one policy likely won’t provide the protection you need. A personal policy can protect loved ones, while a business insurance policy can secure loans, fund buy-sell agreements, cover the loss of a key person, and help keep the company afloat.

6. Diversifying coverage

Mixing the types of insurance policies can make your coverage more robust and flexible. For example, term life insurance is ideal for short-term needs, like paying off a mortgage or protecting your family. Whole life insurance, on the other hand, stays with you for life and supports long-term goals, such as estate planning or leaving a legacy.

Some people also spread their coverage across more than one insurer for an extra layer of reassurance. If one company were ever to face financial trouble, you’d still be protected elsewhere. That said, Canada’s insurance industry is tightly regulated, and insurer failures are extremely rare.

7. Leaving a legacy

How do you want your story to continue after you’re gone? Multiple policies can help you shape your legacy — one for family support, a second for charity, a third for business continuity, and so forth. Life insurance is one way to protect, to give back, and help to pass on what you’ve built for generations to come.

Benefits of multiple life insurance policies in Canada

Now that the reasons are clear, let’s talk about the tangible benefits of having more than one policy.

Flexibility

Life insurance is incredibly customizable. You can choose term or permanent coverage (or get both!), as well as add riders (extra add-on coverage) for things like a disability or long-term care. Your coverage grows and adapts with you — more when you need it, less when you don’t.

Increased coverage limits

Most insurers cap how much coverage offered under a single policy. Holding multiple policies, sometimes with different insurers, lets you build the total protection customized to you.

Strategic financial planning

There are tax advantages that come with life insurance. The death benefit is usually tax-free, so your family gets the full amount. If you have whole life or universal life coverage, the cash value grows tax-deferred, and you can even borrow from it later — often tax-free up to what you’ve paid in.

It also gives your estate a cushion of ready cash, helping your family handle taxes or debts without having to sell the family home or other assets.

Peace of mind

At the end of the day, life insurance isn’t really about numbers — it’s about reassurance. Knowing that your family could keep the house, maintain their lifestyle, or simply take time to grieve without financial pressure is a priceless comfort. Having multiple policies helps protect every part of your life.

How to manage multiple life insurance policies in Canada

Holding more than one policy can strengthen your financial security, but it’s also one more thing to manage. Here’s how to keep it simple.

Track your policies like a pro

Keep your key policy details — premiums, terms, beneficiaries, and expiration dates — in one spot. Whether it’s a spreadsheet, pen and paper, or calendar reminders, find a system that works for you. Missing a payment could cause a lapse in coverage, and forgetting renewal dates might leave you underinsured.

Align with financial goals and budget

Premiums can quietly add up. Checking in once a year or after major life changes with a licensed insurance advisor or financial planner to make sure your coverage still fits your budget and needs is a great way to make sure that you have the right amount of protection. Are there any gaps? Or are there policies you’ve outgrown? A quick review can save you money and ensure your protection stays relevant.

Avoid overlapping coverage

More coverage isn’t always better. Before adding another policy, take stock of what you already have and ensure each insurance policy serves a clear purpose. There’s no need to double up on benefits that don’t add real value.

Work with a licensed insurance advisor

Between renewal dates, coverage limits, and premium schedules, managing more than one policy can feel like a juggling act. That’s where licensed insurance advisor or broker can help.

A good advisor will take the time to understand your needs, review your existing coverage, and make sure your policies truly align with your goals. They’ll also help with updates, beneficiary changes, and even claims.

If you’re not sure where to start, RBC’s insurance advisors are licensed professionals who can walk you through the options (without the jargon).

Keep your loved ones in the loop

Even the best life insurance policy can’t help if no one knows it exists. Store your policy details in a safe place and tell loved ones where to find the documents. It’s a small step that can make a world of difference in the event your family needs clarity and comfort.

What are the alternatives to buying multiple life insurance policies?

Not everyone needs several life insurance policies. Here are a few ways to enhance or expand coverage instead.

Add riders for extra protection

Riders are like adding pineapple to your pizza — it’s already good, but a little extra ingredient can make it even better. These optional add-ons let you personalize your policy, so it fits you. Some of the riders you can mix and match to suit your needs include:

• Additional term insurance for short-term needs like a mortgage or loan;

• Children’s term rider for temporary coverage for your kids;

• Accidental death benefit for extra payout in case of an accident;

• Disability waiver to cover premiums if you become disabled.

Small add-ons, big peace of mind — sometimes at little to no extra cost.

Increase your coverage

If life’s gotten bigger — new home, higher income, growing family — you may be able to boost your current policy without reapplying. Many insurers offer guaranteed insurability, meaning no new medical exam. For example, with RBC Insurance, you can exchange a Term 10 policy for a Term 15, 20, or 30 without updated health information.

Convert a term life policy into whole life insurance

If you started with a term life policy but decide you want lifetime coverage, it’s not game over. Many insurers let you convert your term policy into a permanent one (like whole or universal life) without a new medical exam.

Permanent coverage typically costs more but offers lifetime protection and can build cash value — a savings component you can tap into later. It can be a shrewd move if your health has changed or your long-term goals have evolved.

Find the right insurance policies for your needs

To recap, yes, you can have more than one life insurance policy. For many Canadians, it’s a smart way to cover all the bases. It’s not about having more insurance — it’s about having the right mix.

If you’re not sure what that looks like, speak to a licensed advisor who can walk you through your options and find the coverage that fits.

FAQs about having more than one life insurance policy

What happens if you have more than one life insurance policy?

Each policy is its own contract with its own payout. Your beneficiaries can receive the full benefit from each if premiums are paid and policies are active. Insurers will help you make certain that your total coverage matches your financial situation.

What are the downsides of multiple policies?

The two main downsides of having multiple policies are cost and complexity. Each policy has its own premiums and terms, which means juggling everything takes time and organization. There’s also the risk of over-insuring yourself and wasting money on coverage you don’t need.

Can having multiple policies be a red flag?

Owning a few is fine. Applying for several new ones at once? That could raise questions. Insurers share limited info through the Medical Information Bureau (MIB) in North America to keep applications transparent. It can be better to work with a trusted professional who can help you plan the right coverage before you apply for multiple policies.

Some Canadians believe that life insurance isn’t necessary for people with a high net worth. But having wealth and purchasing life insurance aren’t mutually exclusive. Instead, life insurance can be a key component in financial planning, helping them grow their wealth and assist with estate planning.

If you’re a high-net worth individual, you’re likely seeking strategies to grow and preserve your wealth or plan a legacy. Life insurance can be a strategic piece of estate planning by providing your beneficiaries with liquid, tax-free assets and preserving your estate after death.

Key takeaways

• Even wealthy individuals can benefit from life insurance to build wealth and help with estate planning.

• Life insurance provides your beneficiaries with a tax-free cash payout, which they can use to cover estate taxes and funeral costs.

• Life insurance policies with a buy-sell can help business partners simplify succession plans.

• A life insurance policy can support a charitable legacy and provide additional tax breaks.

• Cash value life insurance policies can act as a saving component and grow on a tax-deferred basis.

Understanding life insurance for wealthy individuals

Life insurance is an element of smart financial planning, even for Canadians with significant wealth. A policy can provide peace of mind, help protect your estate, and leave a tax-free benefit for loved ones after you die.

There are two main types of life insurance: term life and whole life. Term life policies provide coverage for a fixed period—often 10 to 40 years at a fixed cost.  A whole life policy continues without expiry throughout your life. Universal life insurance is a type of whole life policy that offers coverage and cash value growth. It’s more complex than other types of insurance policies as it comes with an investing component that grows on a tax-deferred basis.

Benefits of life insurance for wealthy individuals

Understanding the unique benefits of life insurance will help you clarify what is the best insurance option for your estate needs. This requires a 360-degree look at your assets, liabilities, and any expenses your family will need to cover after your passing.

Purchasing life insurance as part of your estate planning helps you preserve wealth, divide your assets, and diversify your portfolio.

Building wealth

Whole life insurance and universal life insurance policies build a cash value. Once a significant cash value has been accumulated, you could then borrow from the policy or use it as collateral for a loan. This allows you to borrow funds at a potentially lower interest rate than traditional loans or use the accumulated value in their policy as collateral.

Estate planning

Purchasing a life insurance policy is an efficient way to leave your beneficiaries with a lump sum that is tax-free. It can also make it easier to divide assets equally among beneficiaries by introducing liquid assets as part of your estate plan. This helps preserve your estate, rather than loved ones needing to sell or split up assets once you’ve passed away.

Tax efficiency

Unlike business holdings, rental or vacation properties, and registered retirement savings plans (RRSPs), beneficiaries don’t pay tax on funds received from a life insurance payout.

Although the life insurance benefit isn’t taxable when it goes to beneficiaries, it could be taxed if left to your estate. For this reason, some wealthy individuals use life insurance policies to help loved ones cover the cost of estate taxes – giving you peace of mind knowing that more of your estate can be transferred intact.

Liquidity

High-net worth individuals usually have at least some of their wealth tied up in non-cash, illiquid assets. Some of these assets are more complicated to sell than others or are subject to lockup periods. This includes assets such as:

• Real estate (primary, rental, or vacation property)

• Businesses

• Private equity (or other investments with lockup periods)

• Vehicles

• Antiques, art collection, and collectables

However, purchasing life insurance ensures cash flow after your passing, which can go towards covering final tax expenses without having to wait for illiquid assets to be valued and potentially sold.

Legacy and philanthropy

Life insurance can be part of a wealth-preserving strategy. It helps ensure financial security for loved ones and future generations or gives you the option to leave a charitable legacy. There are several ways to leave your policy benefit to the charity of your choice. Directly naming a charity or transferring an existing policy to a charitable organization can mean additional tax benefits. If an existing whole life policy is donated, you’ll receive a donation tax receipt for the cash surrender value and any accumulated dividends or interest less any outstanding policy loans.

Alternatively, naming a charity as your beneficiary would make you eligible for a charitable donation tax credit upon death, which could be used as part of your final income tax return.

Business succession

A life insurance policy can help make business succession easier after your passing. One way to achieve this is by funding buy-sell agreements; this is where  business partners take life insurance out on each other, naming the other as beneficiaries. When one business partner passes away, the life insurance benefit is used to buy the other’s portion of the business from their estate. A buy-sell agreement can save unexpected battles for control or uncertainty of how to settle your business asset.

How to find the right insurance for wealthy individuals

With a variety of life insurance products available to Canadians, how do you find the right product for high-net worth people? Here are a few things to consider:

Financial goals

It’s important to assess your personal financial and estate planning goals as a first step to finding the right life insurance policy. Factors include the amount of estate taxes you expect to owe, or whether you’re concerned you may outlive a significant portion of your wealth.

Life insurance and any cash value or dividends earned with a whole life insurance policy can also be a way to diversify your portfolio and offer additional income.

Identify your needs

Understanding your life insurance needs requires taking inventory of what you have, what you owe, and what your dependents will need now and in the future. The simplest place to start is considering the following three categories:

Assets

This includes financial holdings such as savings, stocks, real estate, businesses, even art and collectables. It is important to distinguish between liquid assets like cash or non-cash items like stocks, which are easy to liquidate, and illiquid assets like businesses or artworks, which can be more complex to value and sell.

Liabilities

This is anything you expect will be owed in your name at the time of your death. Debts from an estate get paid back in a particular order, depending on the creditor. Federal and provincial taxes get paid back first, followed by secured debts like a mortgage or car loan. Finally, unsecured debts, including credit cards, get paid.

Dependent needs

This includes leaving money for family members who may require extra financial support, to help pay for post-secondary education, or as a downpayment on a property. Examples of charitable giving may include an amount to endow a new initiative, such as a scholarship.

Assessing all three areas provides a clearer idea of what type of life insurance policy will best help you reach your estate goals.

Life insurance trusts

For holders of whole life insurance policies, a third-party trust can assist with distributing your benefit after you pass on. This could include making provisions for a staggered distribution of funds at certain ages or life milestones like a graduation or wedding.

Life insurance trusts can also help when the person benefitting is under the age of majority or is vulnerable and would benefit from ensuring their inheritance doesn’t deplete quickly. Trusts could also support family members with special health needs without affecting their eligibility for government-sponsored programs they otherwise qualify for.

Consult with an accredited advisor

You may not feel comfortable navigating life insurance on your own or have questions about how you can maximize your estate. Getting professional advice helps you evaluate the unique needs of your estate, so you can make an informed decision.

Protect your assets and your loved ones with life insurance

Depending on your unique needs and goals, private life insurance options are also available and can be a valuable tool to protect assets and secure a legacy.

Whatever you decide to do, it’s helpful to speak with an accredited advisor with expertise in insurance for high-net worth individuals as you determine how life insurance can help support your estate plans.

FAQs about life insurance for wealthy individuals

Do I need life insurance if I’m rich?

People with significant wealth can still benefit from a life insurance policy. Wealthy individuals with large estate tax bills, who want to divide their assets among multiple heirs, or have an illiquid assets might could all benefit from life insurance. A life insurance policy can also assist in supporting a charitable organization as part of a legacy plan.

How much life insurance do I need for a high income?

Experts typically recommend a benefit equivalent to ten times your annual income. Wealthy individuals may also wish to consider other factors like debt levels—including any mortgages on a home or vacation property— as well as leaving a legacy for loved ones or planned charitable giving.

At what point is life insurance not worth it?

Individuals with significant liquid assets, few debts and little to no dependents may find it less advantageous to purchase life insurance, however there could still benefits in doing so.

How do the wealthy use life insurance?

Wealthy individuals can use life insurance to make their estate more tax efficient and plan their legacies. Benefits of life insurance include:

• Peace of mind knowing beneficiaries have funds to help cover estate taxes from the insurance benefit.

• Supporting their unique legacy and charitable goals with a tax-free gift.

• Accumulating cash value or dividends, depending on the policy type and length of time held.

• Using a policy with accumulated value as collateral for a loan or borrowing from the policy’s value.

• Taking advantage of accelerated benefits to provide extra liquidity (if the policy allows) in the event of a terminal or chronic illness.

What is the best life insurance to build wealth?

Only whole life and universal life insurance policies build tax-free cash value, making them the best type of life insurance to build wealth. Term life insurance policies do not have a cash value component. Accumulated growth left in a whole life policy is not taxed, and you could be withdrawn or borrowed against.

Do wealthy people invest in life insurance?

Yes, some wealthy Canadians consider their life insurance policy a low-risk investment in addition to an estate planning tool. By purchasing a whole life or universal life insurance policy it can accumulate cash value over time, through savings or dividends. It is a long-term strategy to build additional wealth while setting up a tax-free cash benefit for their beneficiaries.

Looking to cash out a life insurance policy? You may be able to, depending on the type of policy you have. Accessing the cash value could help cover your various financial needs. Learn more about the benefits and drawbacks before you access these funds.

No matter how financially prepared you are, sometimes you may face a situation where you need immediate access to cash. Whether you are facing an emergency, want to invest in a business opportunity, or need to supplement your income during retirement, you might be able to turn to your life insurance policy as a source of funds.

These real-life situations could happen to anyone and the accrued cash value in a life insurance policy may provide you with the financial protection you need. The good news is you can access the cash value in certain types of life insurance policies. However, you’ll need to understand the rules, risks, and financial implications before you tap into these funds.

Here, we’ll cover the types of life insurance policies that allows you to access the cash value, how to go about it, as well as the associated risks and considerations before making a decision.

Key takeaways

• With certain whole or life insurance policies, you can cash out or access the cash value of a life insurance before death.

• Borrowing, withdrawing or surrendering your policy are several ways you can access the cash value of a life insurance policy.

• The surrender charges or loan interest may reduce your payout.

• Accessing the cash value of a policy gives you faster access to funds, but you may forego future growth on the cash value and possibly reduce your death benefit.

• It may make sense to access the cash value of a life insurance policy when you face an emergency, to supplement retirement income, or when it’s part of a broader financial strategy.

What it means to cash out a life insurance policy

Cashing out of a life insurance policy means that you’re ending the contract to receive the accumulated cash value. The process involves cancelling the insurance policy. So, your beneficiaries will no longer receive the death benefit. You’ll also receive a lump sum payment to help cover your financial obligations.

You can also access the cash value of a life insurance policy without cancelling it entirely by taking out a policy loan or making a cash withdrawal.

You may choose either option if you’re experiencing a financial hardship, to supplement your retirement income, or you have unexpected expenses such as a medical bill.

Types of life insurance and whether they can be cashed out

Each type of life insurance policy has unique features and benefits. Here’s a quick overview of the three main types of life insurance, and which kind of policy allows you to access it’s cash value.

Term life insurance

Typically, there is no cash value component with term life insurance. You won’t be able to cash out a term life policy since there’s no savings or investing value. However, you may cancel your policy at any time. It’s important to note, the moment you stop paying the premiums, the coverage will end. As a result, you shouldn’t expect to receive a payout or refund.

Whole life insurance

Whole life insurance policies allows you to accumulate cash value and can be fairly straightforward to access. There are several options for cashing out this permanent life insurance policy, including:

Taking a policy loan to borrow against the cash value: There’s no credit check involved, but you’ll pay interest. Any unpaid loans and interest charges will be deducted from the death benefit.

Making a partial withdrawal: This strategy keeps the policy active, but it’ll reduce the death benefit.

Requesting a full surrender of the cash value: This option will result in the loss of insurance coverage and may lead to cancellation charges and tax implications.

We’ll explain more about these options below.

Universal life insurance

This type of permanent life insurance provides you with the most flexibility. It includes cash value that could grow over time. Similar to whole life insurance, you have the option of borrowing, withdrawing, or surrendering your policy.

Remember, depending on which option you choose, you may pay fees, reduce your death benefit, and experience tax consequences. You may also miss out on potential investment growth and lifelong protection.

Discover RBC’s permanent life insurance options, including whole life and universal life insurance. These policies provide an opportunity to build cash value and grow your financial safety net.

How cash value works

When you have a permanent life insurance policy (whole life or universal life), you may accumulate cash value through your premiums and investments. The cash value is the savings component of your insurance policy. A portion of your premiums goes towards this tax-deferred account, which you can use to withdraw or borrow from. 

For example, a whole life insurance policy allows you to build cash value over time through potential dividends and investment growth. After a decade of paying premiums, your policy should have a sizeable cash value that you may access.

5 ways to access the cash value of a life insurance policy

Here’s an overview of the different ways you can access the cash value of your life insurance policy, along with the benefits and drawbacks.

1. Surrendering the policy

When you cancel the policy, you receive access to a lump sum payment known as the cash surrender value (or CSV). This amount is your accumulated cash value less surrender fees, loans, interest or outstanding premiums. Keep in mind that you’ll lose your coverage, and part of the payout may be taxable.

2. Taking a policy loan

You may borrow against the cash value of your policy, using it as collateral. It allows you to retain the policy while accessing the funds, typically and no credit check is required. If you don’t repay the loan, the risks are that the interest accrues, and it’ll decrease the death benefit.

3. Partial withdrawals

Withdrawing a portion of the cash value maintains coverage while freeing up funds. The downside is that it permanently reduces the cash value and the death benefit that your beneficiaries receive. Also, the funds you withdraw may be subject to taxes. Unlike a policy loan, once you withdraw the funds, you can’t repay the amount into your cash value. 

4. Selling the policy (life settlement)

Certain provinces (such as Saskatchewan and Quebec) and select life insurance providers may allow you to sell your policy, known as a life settlement. You sell the policy for more than the cash surrender value but less than the death benefit. The process involves the buyer paying a lump sum, taking over the premium payments, and receiving the death benefit when the insured person passes away. However, you’ll lose your coverage, and there are potential tax liabilities.

5. Accelerated death benefits

Some insurance policies allow access to a portion of the death benefit early in cases of terminal illness. For example, with RBC’s universal life insurance, you may be eligible to receive a compassionate advance. This feature allows you to request an advance of up to 50 per cent of your policy’s death benefit (a maximum of $250,000) if you become terminally ill.

Rules and tax implications of cashing out a life insurance policy

As you evaluate your options, it’s important to understand the tax implications and to be aware of all the rules before you withdraw any funds from your insurance policy.

Here are the most common rules to know:

Taxable gains: When you cash out a policy, if the cash value is greater than the total premiums paid, then it’s deemed as taxable income. You’ll receive a T5 slip from your insurer for the taxable amount.

Surrender fees: It’s common to have surrender charges, especially in the early years if you cancel your insurance policy. These fees reduce your cash surrender value. Usually, the longer you have your policy, the lower the fees.

Policy loan interest: A loan taken out against the cash value accrues interest. You need to repay the amount you borrowed plus the interest to avoid reducing the death benefit.

Impact on beneficiaries: If you decide to cash out or borrow against a policy, it could reduce or end the death benefit that’s intended for the beneficiaries.

Comparing different life insurance policies requires you to understand the terms, conditions and the long-term implications clearly. An accredited broker can provide transparent information on fees, taxes, and other considerations. This will help give policyholders confidence when making these life-changing decisions.

Risks of accessing the cash value or cashing out a life insurance policy

When you cash out a life insurance policy, there are associated risks to be aware of:

Loss of coverage: When you surrender or sell a policy, it leaves you without life insurance protection. If you decide to get coverage at a later date, the premiums may be higher due to age or changes to your health.

Financial consequences: There’s the potential for financial instability if the cash-out amount isn’t enough to meet your long-term needs. Fees, interest on loans, and taxes may also reduce your payout or coverage.

Opportunity cost: If you choose to cash out a policy now, you’re forfeiting the future growth of the policy’s cash value along with the death benefit payout. As a result, you may miss out on long-term benefits in return for the convenient access to immediate funds.

Emotional and legacy impact: Life insurance may offer reassurance and a legacy for those who matter most to you. If you decrease or cancel your coverage, it could have an emotional toll on loved ones who will or lessen your ability to pass on an inheritance.

Alternatives to cashing out your life insurance policy

Before surrendering your life insurance policy, consider exploring other options. Here are several solutions to consider:

Adjusting the policy: It’s possible to reduce the death benefit or premium payments. Making these changes to your policy allows you to keep your policy active while still giving you financial wiggle room.

Policy loans: Instead of surrendering the policy, you may borrow against the cash value. The policy loan uses the cash value as collateral. It’s also a quick way to access your cash without any impact on your credit score. Furthermore, there’s flexibility in paying back the loan, but you’ll need to be mindful of the interest charges.

Using other assets: Look for other financial resources before tapping into your life insurance. An emergency savings fund, investment accounts such as the Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP), or home equity line of credit (HELOC) or government benefits may be viable options.

Consulting a financial advisor: Making this decision requires thoughtful consideration, and you may need a second opinion. Consider getting expert advice from someone who can give you personalized recommendations.

Why accessing the cash value or cashing out a life insurance policy might make sense

A permanent life insurance policy may give you the option to cash out. In certain situations, cashing out could make financial sense. For instance, if you face an emergency such as medical bills or job loss, or to support you during retirement.

Bear in mind that it comes with rules, benefits, drawbacks, and financial impacts. Ensure you thoroughly review the cash-out policy, tax implications, and opportunity costs before dipping into your cash value. Consider consulting with a trusted advisor who can walk you through the possible impacts before you make any financial decisions.

Frequently Asked Questions (FAQs) about cashing out a life insurance policy

Can you cash out a life insurance policy?

Yes, if you own a permanent life insurance policy, you could cash out the policy. Whole life or universal life insurance policies gradually build cash value. However, if you have term life insurance, there’s no cash value component and you don’t have the option to cash out of this type of insurance policy.

Is cashing out life insurance taxable in Canada?

If you decide to cash out permanent life insurance, then the money you receive may be taxable. For example, if you withdraw a portion of your cash value, you’re likely to pay taxes on it. If you surrender your policy, then the cash you receive may also be taxable. In the instance of taking out a loan against your policy’s cash value, it may be subject to tax.

How much can you get if you cash out your life insurance policy?

The amount of money you receive is based on your cash value minus any unpaid premiums, interest charges, loans, or surrender fees. If you cancel your policy, the payout you receive is called the cash surrender value (CSV).

Can you cash out a policy without cancelling it?

There are several ways you can cash out a policy without cancelling it. A standard method is to access the cash value by taking out a policy loan, meaning you’re borrowing against your cash value. The coverage remains active, but any unpaid loan amount and interest will reduce the death benefit.

Another option is to make a partial withdrawal from the cash value accumulated. The policy remains in place, but it will lower the cash value, affect future growth potential, and reduce the death benefit amount.

Does cashing out affect your beneficiaries?

Yes, if you access the cash value or cash out of your life insurance policy, then it will directly affect your beneficiaries. If you cancel your policy to receive the cash value, your coverage will end. Also, your beneficiaries won’t be eligible to receive a death benefit when you pass away. If you choose to make a withdrawal or take out a policy loan, your coverage remains active. However, the withdrawal amount or loan balance will be deducted from the death benefit.

Some Canadians worry that pre-existing health conditions could disqualify them from life insurance coverage. Undergoing medical tests, age or health constraints, or a high-risk job could make securing affordable life insurance a challenge.

However, no medical exam life insurance could be the answer. 

Life insurance offers peace of mind, as it helps take care of loved ones financially after you pass on, with benefits that aren’t taxable for recipients. A no medical exam life insurance policy can be used to plan for funeral expenses or help provide for your family, should something happen to you.

In this article, we will explore the common questions, myths and everything else Canadians need to know about no medical exam life insurance.

Key messages

• No medical exam life insurance is designed for individuals who may not qualify for traditional life insurance.

• This type of insurance offers a streamlined application process without the need for medical exams or health questionnaire.

• While no medical exam life insurance offers convenience and accessibility, it typically comes with higher premiums and lower coverage limits compared to traditional policies.

• Types of life insurance products available with no medical exam include simplified term life insurance and guaranteed acceptance life insurance.

What is life insurance with no medical exam?

Life insurance with no medical exam is a policy that offers coverage to leave a financial lump sum after your passing without a deep dive into your health and lifestyle or medical testing. The application process is usually more streamlined than with more standard life insurance.

Medical and laboratory tests are a normal step insurers take to assess the overall risk of covering new clients with standard life insurance policies. Because insurers get a detailed risk profile, individuals in good overall health with fewer risk factors may be eligible for more coverage.

The key differences between life insurance policies with and without medical exams are monetary. No medical exam policies typically have lower coverage amounts and higher premiums than standard life insurance. This reduces risk for insurers, as they have less information about the health and risk levels of clients selecting these policies.

No medical exam life insurance policies are designed for individuals who:

• Have anxiety around needles or medical testing

• Have certain pre-existing medical conditions, such as heart disease

• Are 50 years of age and older

• Have high-risk hobbies like motorsports, rock climbing, or scuba diving

Types of life insurance with no medical exam

There are two main types of life insurance are available without medical exams: simplified issue life insurance and guaranteed life insurance.

Simplified issue life insurance

Simplified issue life insurance is “simple” because of a streamlined approval process that doesn’t always require a medical exam. Instead, when applying for simplified issue life insurance online, clients fill out a questionnaire that includes health and lifestyle questions about:

• Current or past health issues, including preexisting medical conditions

• Family history

• Prescription medications taken

• Smoking habits

Depending on the responses and the amount of coverage selected, clients seeking simplified issue life insurance may receive coverage at the time of application – all with no medical exam.

RBC Simplified® term life insurance is designed to offer affordable protection for Canadians, with coverage ranging from $50,000 to $1 million, depending on your age.

Guaranteed acceptance life insurance

No medical exam life insurance policies which accept all eligible clients is known as guaranteed acceptance life insurance. In addition to no medical exam, clients typically won’t have to answer detailed health and lifestyle questionnaires but will have to disclose their smoking habits. Provided that age and residency criteria are met, policies can be approved quickly.

RBC’s Guaranteed acceptance life insurance offers up to $40,000 of guaranteed coverage for Canadians aged 40 to 75. Interested to learn more? Get a quote online.

This type of insurance product can be a benefit for people who are underserved by traditional policies, as it includes:

• Lifetime coverage

• No medical exam

• Tax-free benefit

• Stable premiums

Who should consider no medical exam life insurance

No medical exam life insurance is a good choice for people underserved by standard life insurance policies. This includes customers aged 50 and over, people with preexisting health concerns such as cancer, heart disease, and those who are uncomfortable with medical testing processes.

Life insurance policies without medical tests can also be good choices for clients looking for a simple application process with low wait times for coverage to begin.

Canadians who apply for no medical exam life insurance also include people who work in careers with high risks of injuries or fatalities, and others with potentially dangerous hobbies like extreme sports. While these groups may be rejected for traditional coverage, they can still find a no medical exam life insurance option that will provide them with coverage.

Pros and cons of life insurance with no medical exam

Choosing one life insurance policy over another requires weighing different options to decide what’s right for you. Benefit amount, budget, coverage length and whether coverage is guaranteed can factor into deciding if a policy is a good fit.

Here are some pros and cons to consider when applying for no medical exam life insurance in Canada:

Pros of life insurance with no medical exam

Accessibility: People who might normally be denied standard life insurance coverage, including the uninsured and underinsured, can access life insurance coverage through no medical exam policies. Guaranteed acceptance policies are open to all who meet age and residency requirements, even if they have health issues like pre-existing conditions or risky careers or hobbies.

Convenience: Applying for a no medical life insurance policy online is simple—no appointments necessary and no scheduling a medical exam. Some policies, such as guaranteed life insurance, may be approved quickly with no medical exam required.

Peace of mind: Knowing that you are insured can bring peace of mind to you and your loved ones.

Speed: While traditional policy approval could take up time with meeting an advisor, medical appointments, and lab tests, applying for life insurance with no medical exam can be done in minutes.

Cons of life insurance with no medical exam

Premiums may be higher: While no medical exam life insurance generally costs more than medically underwritten policies, skipping medical tests and faster approval can still make them more convenient for some people.

Lower coverage limits: Compared to standard policies, no medical exam required life insurance offers more limited benefit packages. Guaranteed life offers coverage of up to $40,000, while more traditional life insurance products can cover Canadians for up to $25 million.

Limited options: Traditional policies with a medical exam might offer better value to younger, healthier individuals who are looking for comprehensive, long-term coverage.

Common myths about no medical exam life insurance

1. It’s only for people with health issues

No medical exam life insurance is designed for people who want a simple application process. While this includes people with health issues or preexisting conditions, it also includes those who have high-risk jobs or hobbies and others who want the convenience of getting faster online approval for their policy, instead of waiting up to several weeks.

2. It’s more expensive than traditional policies

No medical exam life insurance policies generally have higher premiums than standard coverage, but it is still possible to find no medical exam life insurance—even on a budget. Premiums could vary depending on an applicant’s age, health, along with the amount and length of coverage.

3. It offers limited coverage options

Though no medical exam life insurance is simple to apply for and has comparatively fewer options than standard life insurance policies, you can still select from multiple terms and benefit packages. Policy amounts can vary from a few thousand dollars up to $1 million, allowing clients to pick a product that works with their budget and unique needs.

4. It’s less reliable than traditional life insurance

No medical exam life insurance policies are as reliable as any standard life insurance policy. However, like any insurance product, it is important people understand the terms and conditions and any exclusions.

Protect yourself with life insurance without a medical exam

If you expected that life insurance coverage was too complicated to apply for, or wasn’t available because of your age, health history, or lifestyle, think again. Whether you have a pre-existing health condition, participate in high-risk hobbies, or prefer to avoid dealing with health providers, medical exam life insurance could be the key to affordable coverage and peace of mind.