WHOLE LIFE INSURANCE

    Participating or Non-participating life insurance

    Arguably the most popular permanent life insurance is whole life insurance. There are two types of whole life insurance policies out there and those are Participating or Non-participating life insurance. So let’s take a look at whole life insurance and then we will break down the two different types.

    Whole life insurance has three main factors to know 
    • Death benefit
    • Premiums 
    • Cash Surrender Value 

    Death benefit

    Most people know that term insurance offers temporary coverage. But what happens if you want coverage to pay out regardless when it happened? well, the answer to that is permanent insurance. With whole life your death benefit remains level for the life of the policy. If you purchase a $500,000 policy you know your loved ones will receive a minimum of $500,000 in tax free benefits if the life insured passes away. This coverage is there to protect you until age 100 (with most carriers today). Unlike term insurance which often ends when you turn 80.

    Premiums

    The cost to own term insurance will increase every 10, 20, or 30 years depending on your policy. That is not true for whole life insurance. With whole life insurance your cost for life insurance remains level either for the life of the policy or a specified period of time. You can choose a life pay but a lot of companies offer a limited pay option as well. Limited pay will be a more expensive option however after 10 or 20 years you can stop paying your premiums and you own the policy out right.

    Cash surrender value

    Cash surrender value or CSV for short is like a forced savings account. Simply by paying your premium your CSV will grow. The amount of growth on your accounts is typically around 4% in the long run but there are a few factors that could change that number. 

    The original idea in creating a cash surrender value was if you ever were to cancel your policy you wouldn’t be walking away empty handed and many Canadians preferred that. However, don’t let the name fool you. You do not have to cancel your policy in order to access your funds. Many Canadians who want a permanent life insurance will use the CSV to supplement their retirement savings. 

    Participating or Non-participating life insurance 

    Now that you understand the base whole life insurance plan let’s talk about the difference between Participating or Non-participating whole life insurance.

    The difference is simple. Participating whole offers a dividend. Where non-participating whole life insurance does not.
    The best way to think about this dividend is the insurance company is rewarding your for doing business with them. Dividends in participating policy are fairly small in the first few years but they grow over time. Dividends are the one part of whole life policies that are not guaranteed. That being said, there hasn’t been a Canadian insurance company that hasn’t paid out a dividend in over 150 years. That includes every major recession and depression in recent years. So, although it’s not guaranteed it’s still likely to be a benefit.

    Dividends

    When it comes to collecting dividends, you do have some freedom here when setting up your policy. Dividends can be paid to you directly and you can choose do what you want with that money. What most people do is reinvest them into with policy. If you remember earlier, I mentioned the returns in your cash surrender values can change. It’s because of this some policies will return better than others.

    For more information on setting up your own whole life insurance policy feel free to contact TIPs and one of our non-commissioned staff members will be happy to help.