Whole Life Insurance is a form of permanent life insurance with a fixed or level premium that is usually payable for the entire lifetime of the insured. Premiums can also be paid up over a shorter period of time, usually over 20yrs. A Participating whole life policy is usually the costliest type of permanent Life Insurance and can be considered to be the most superior type of Life Insurance. As the old saying goes ‘You always get what you pay for’. Particpating Whole Life Insurance Plans pay an annual dividend to the policyowners. The dividend is not always guaranteed but most Canadian Insurers have a long & strong track record of paying a solid dividend each year to participating policy holders. Non-Participating Whole Life Plans do not pay dividends & the cash values of these plans are fully guaranteed. Whole life Insurance is not meant to be a short term investment, but rather a long term investment which can be more profitable than a long term investment in the stock market. The high cash values, the dividends and an increasing death benefit over time can make whole life Insurance extremely more attractive than other permanent plans. Properly structured, a whole life policy can produce an accessible stream of Tax-free Income for you during retirement, which can also be another great source of retirement income.
Whole life can combine permanent life insurance protection with a tax-advantaged savings component. It can provide insurance protection for life, provided premiums are paid when due. Participating life insurance is flexible permanent life insurance with:
- A core of guarantees for basic coverage—premium, death benefit and cash surrender values
- A tax-advantaged savings component
- The potential for earning policyholder dividends that can be used to purchase additional life insurance or reduce your out-of-pocket premiums (policyholder dividends aren’t guaranteed)
- A choice of riders and benefits that can be added to the basic policy
Participating life insurance is particularly attractive to Individuals who:
- Have low to moderate risk tolerance
- Aren’t interested in a life policy where they’re expected to actively manage an investment component
- Are attracted by the historical long-term stability of the rate of return on participating account assets (past performance is not, however, a guarantee of future performance)
- Are looking for guarantees
Participating life insurance is flexible permanent life insurance with:
- Guaranteed basic premiums
- Guaranteed basic death benefit
- Guaranteed basic cash values
- Policyowner dividends that can be used to purchase additional life insurance or reduce out-of-pocket premiums (Policyowner dividends aren’t guaranteed)
- Tax-advantaged savings component
- Choice of riders and benefits that can be added to the basic policy
- Premium flexibility
What will the death benefit & cash values look like in a Whole Life Insurance Policy over the long term?
This example below is based on a Male age 35, non-smoker, in good health purchasing a Participating Whole Life Policy for $100,000-paid up in 20 years (20-pay option with paid up additions) from one of the Top Canadian Insurance Carriers. The Annual premiums you are obligated for will not be required after 20 years and the policy will continue to accumulate cash surrender values. You will continue to receive an increasing yearly annual dividend and an increasing death benefit as well. The dividend is not always guaranteed but most Canadian Insures have a long and strong track record of paying a solid dividend each year to participating policy holders. The most common dividend options today are called ‘Paid-Up Additions’. When selecting the Paid Up Additions as your dividend option, you use the full amount of the dividends being paid out each year to buy you additional Units of Permanent whole life insurance paid up for life. The additional Insurance will also earn dividends. The accumulation of these paid-up additions will greatly increase the death benefit and cash values of the policy. This example is based on a Primary dividend in today’s low interest rate environment and ‘Paid-Up additions’ option as of June 2012:
Total Monthly Premiums: $284.85
Total Death Benefit in Year 10=$122,875 Year 20=$180,751 Year 30=$256,192
Total Cash Surrender value in Year 10=$21,709 Year 20=$64,184 Year 30=$124,966
From the values shown in this example, the death benefit and cash surrender values will increase tremendously over time, even without any more contributions from the policy owner or Life Insured after the 20 year period. When the Life Insured reaches age 65 they would have spent a total of $68,360 in premiums over a 20yr period, and the cash surrender values of approximately $125,000 would be accessible if needed. Cash surrender values from a whole life policy can be withdrawn in full if you choose to surrender the policy, or it can be borrowed against without having to be paid back in full. The Cash value borrowed plus any interest accrued will be deducted from the death benefit. This would be an extremely beneficial source of retirement income for the Life Insured that can be considered an added bonus on top of any RRSP’s, RIF or Pensions.
*Please note that the cash surrender values shown in this example includes the anticipated annual dividend and therefore can not be fully accurate or guaranteed, and may be more or less than the above mentioned illustration. However, a portion of the Cash Surrender Values are fully guaranteed. This example is based on a fairly conservative dividend estimate and monthly premiums/rates as of June 2012. We cannot guarantee these monthly premiums as they can change without notice based on common rate increases; however premiums for whole life policies are guaranteed to remain level once the policy is in force. All Cash values in a whole life policy or other permanent plans may be subject to taxation in the year withdrawn, depending on the adjusted cost basis (ACB).
Early Premium Offset Option
The Premium offset Plan is available to you when current dividend values plus anticipated future dividends are sufficient enough to cover your entire future scheduled premiums. Theoretically, a Premium Offset Policy is designed so that, after a certain number of years, the amount of the policy dividend will be sufficient to offset, or pay, the outstanding annual premium. Effectively once this point is reached, the Policyowner would no longer have to worry about maintaining premium payments to keep the policy in force.
One of our qualified Insurance brokers will help you assess you Insurance Needs and complete an Insurance Needs analysis with you at no cost. We cannot provide you with any recommendations without properly assessing your insurance needs and finding out more about your circumstances.