Whole Life Insurance – A Guaranteed Investment in Uncertain Times

The recent fluctuations of the stock markets having left many investors running for cover. The equity markets historically produce generous returns over the long haul but many investors are spooked by the potential of losing 25% or more of their capital in any given year. For investors looking for a risk free alternative, whole life insurance in Canada can provide an interesting option.

The advantages of Whole Life insurance as an investment are the following:

  • All premiums and death benefits are guaranteed. Non Participating Whole Life policies which do not participate in the insurance companies profits and do not receive dividends are lower in cost and are fully guaranteed. Participating Whole Life policies do participate and the insurance companies profits and do pay a dividend. The premiums on these policies are higher and the dividends are not guaranteed

  • All life insurance death benefits are guaranteed

  • In addition to the death benefit, whole life policies also have a guaranteed cash value and in the case of Participating Whole Life policies they have guaranteed cash value plus the cash value of any policy dividend. As stated above the dividend rates fluctuate with the insurance companies profits and interest rates. But the fluctuations are modest when compared with traditional equity investments.

The primary disadvantage of whole life insurance as an investment is that death benefit only pays out when the insured dies. If the funds are being used to pass on proceeds to a spouse or child this is inconsequential because the policy never expires so the beneficiaries are guaranteed to receive the proceeds tax free in the future. Generally 90% to 95% of the cash values on a whole life policy can be withdrawn in the form of a policy loan and it is deducted from the death benefit along with any loan interest when the insured passes away.

Below is an example of pricing for $250,000 of Whole Life – Payable to 65 coverage for a 33 year old female non smoker.

The annual premium is $1175 a year and the policy is paid up at 65. The policy has a cash value of $100,500 at age 65 and $141,000 at age 75. The policy owner maximum contribution up to age 65 is $37,600. It is difficult to calculate the policies internal rate of return because the exact date of death is an unknown variable. However what is guaranteed is a tax free death benefit payout of almost seven times the applicant’s initial deposit – this could be an even higher multiple if the insured dies before 65.

Most recent articles

Your email address will not be published. Required fields are marked *

  • LSM Insurance
    July 24, 2009 at 2:53 pm

    Hi Suzanne,

    If it is a participating Whole Life policy the policy will produce a dividend which may be buying additional insurance which would increase the death benefit.

    He can cash the policy out be keep in mind a portion would likely be taxable whereas the death benefit is tax free.

    Regards … Lorne

  • Suzanne
    July 23, 2009 at 2:46 pm

    My father purchased a Whole Life policy for a benefit of $1000.00 in 1946. Premiums were 21.00/yr for 20 yrs. He made all the payments and has a letter from the insurance company acknowledging this.

    Can you tell me how much the death benefit of this policy would be today?
    Is it still possible for him to get some ‘cash’ out of it?

    Thank you for your help.