When Permanent Insurance Makes Sense

March 1, 2026

As the children get older and move out on their own, and your mortgage and other debts are nearly paid off, the need for life insurance capital designed to replace income for dependents decreases.

You May Still Need Some Life Insurance. It may be time to consider converting your term insurance to a permanent plan, which can provide ongoing coverage in the event you “outlive” your term insurance. Make sure that your term insurance doesn’t expire before you do.

Permanent insurance can do one or more of the following:

  • Provide cash to equalize an inheritance
  • Provide cash for a surviving spouse
  • Preserve your estate
  • Pay for final expenses

Mitigate Term Rates: Term policies become increasingly expensive over time, since premiums are based on age. Verify your policies’ renewal rates and find the cost for each renewal period. It may also be prudent to verify if your term policy has the option to convert to a permanent life insurance plan.

Conversion Needs No Medical Underwriting. The advantage of converting a term plan you are in good health. Some people opt to keep a portion of the convertible term while combining permanent coverage that lasts an entire lifetime.

If you own a Term to 100 policy This is actually a permanent plan, so it is advised to keep paying it. The premium will seem smaller compared to inflation as you age. For example, if a healthy male bought a one-million-dollar Term 100 policy for $250 in 1988, it would seem a very practical premium in 2026 as his longevity shortens each year. Some insurance companies will pay a seriously ill individual a discounted sum based on their current longevity. Term 100 plans pay out if you live to be 100.

Consider the real rate of return of a death benefit.

The actual internal rate of return of an insurance policy, for example, on a term-to-100 life insurance policy, is generally much higher than the return on investing the premiums in a GIC after tax, paid over the years.

If you do the math and calculate the potential rate of return that can be received tax-free on a term-to-100 life insurance policy, you quickly learn that developing a death benefit for your estate can be an effective estate planning tool.

From an estate-planning perspective, the risk of premature death is mitigated. Estate planning would ensure a guaranteed sum is paid even if the policy owner were to die within 1 day of buying the policy. An early death would maximize the estate benefit and minimize taxation in his year of passing, as the life insurance policy would provide a much larger benefit than an after-tax investment could accrue.

What You Should Review. If you are considering making a conversion from term to permanent life insurance and are in your fifties, this might be a good time to call your insurance specialist. At the same time, examine:

  • All of your estate planning needs.
  • Include personal and business debts.
  • Your will or trust, investments, potential estate taxation, life insurance policies, bank accounts, and retirement accounts.
  • Health-wise, make sure you have a medical or durable power of attorney.
  • Confirm you have beneficiaries up to date

Note: Tax legislation can change, so discuss this with your insurance strategist or an accountant.

1 CRA Website on amounts not taxable

2 Statistics Canada, Life expectancy table

 

 

 

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