Whole Life Insurance Canada
Is Traditional Whole Life Insurance Right For You?
Are you looking for a policy with rock solid guarantees?
As an owner of a Whole Life Insurance Policy, you are Participating in the performance of the insurance company through the payment of Dividends!
Participating Whole Life Insurance combines permanent life insurance protection with a tax-efficient savings component. Whole Life Insurance offers protection for life and a great deal of flexibility through:
- Solid guarantees you can bank on – the premiums you pay, the death benefit you will receive and the guaranteed cash surrender value.
- A tax-sheltered savings component you can use.
- The potential to earn dividends when the life insurance company is making profits, which can be used to increase your amount of life insurance or reduce you out-of-pocket premiums.
- Various riders and benefits you can add to your policy to make it unique and valuable to you.
- Flexible premium payments to fit your budget.
A participating whole life insurance policy has the potential to earn the policyholder (owner) dividends from the insurance company. All premiums paid into the policy are put into a Participating Account. The insurance company has calculated your premium and guaranteed cash value from their long-term statistics (over 130 years of experience and millions of policyholders in Canada). The insurance company has made certain assumptions for the entire group of whole life insurance policyholders, like the mortality risk, investment returns, company expenses, etc. Your guaranteed premium, guaranteed death benefit and guaranteed cash value are based on these assumptions.
If the Participating Account’s performance is more favourable than the long-term assumptions, then the insurance company has made a surplus profit, and will declare a dividend to reward the policyholders a portion of this surplus. The amount of dividend paid out each year will fluctuate based on the actual experience of the life insurance company. They will often retain some of their surplus in good years, pool this money, so that they can smooth out dividends to policy holders in bad years, when the life insurance company experiences unfavourable returns to their Participating Account.
There are 4 choices of how you can use your dividends being paid out from your Whole Life Insurance policy in Canada. These are explained in their order of popularity among policyholders:
Buy additional life insurance through paid-up additions: each year, as the dividends are paid out, the policyholder has directed the insurance company to purchase additional life insurance on their behalf. This allows the policyholder to have his/her insurance policy grow over time: as your dividends increase so will your amount of final death benefit.
Enhanced insurance coverage option:this allows you, the policyholder, to reduce your life long premiums for your insurance coverage buy starting off buying a smaller amount of permanent whole life insurance and supplementing this with term life insurance to get you up to the desired death benefit. Each year as dividends are paid, the insurance company buys you a small amount of permanent coverage, so that you have less term insurance to pay for next year. Ultimately over time you will have no term coverage left and will own the total amount as permanent whole life insurance. Your coverage will not grow like the paid-up additions option, but your premiums will be much reduced.
Premium reduction option: this option instructs the insurance company to allocate the dividend to reducing your premium. As your policy gets more mature (you have had it for many years) your dividends will increase as a reward to long-term policyholders. There will come a time when your dividends will equal and exceed your annual premiums. At this point you no longer have to pay monthly or annual insurance premiums and begin receiving cheques from the insurance company.
Cash accumulation option: with this choice all you are doing is telling the insurance company to keep your dividends in the policies Withdrawable Premium Fund in case you want to access it as a source of savings. You can also elect to have the accumulated cash paid out to you as a cheque each year after the dividend has been paid.
There are only a few insurance companies left in Canada selling participating whole life insurance. The most prominent of these companies are:
As an example of how well managed a Whole Life Insurance policy can be, have a look at Canada Life’s 2011 Dividend Scale Announcement. It shows that Canada Life’s Dividend Scale Interest Rate has averaged 9.9% annually over the last 30 years.