Understanding Limited-pay Whole Life Insurance Plans

Unity Life of Canada joined the Foresters family in April 2008 and as of Jan 23 2012 changed their name to Foresters Life Insurance Company.

Limited-pay Whole Life insurance plans provide guaranteed level premiums, lifetime protection and the policies are guaranteed paid-up after a limited number of years.

UPDATE: These policies have recently been in the Canadian industry spotlight in Canada. Historically low interest rates have reduced profitability on these plans and forced many Canadian insurance companies to raise rates or remove these plans from their product line-up.

Unlike other permanent life insurance policies, which allow for a quick pay option, limited-pay policies are fully guaranteed i.e. the payment period will not vary depending on the underlying investment performance. A Universal Life policy with an underlying equity investment might project a pay period of 15 years, but if the markets tank, the insured may have to pay for up to 25 years. This element of risk is eliminated by a Limited-pay Whole Life policy.

Limited-pay policies are fully guaranteed i.e.the payment period will not vary depending on the underlying investment performance.

Limited-pay policies can be non-participating or participating. Participating policies pay a dividend. The dividend can be used to increase the death benefit of the policy, which gives the insured a hedge against inflation. Participating Whole Life  policies are generally more expensive than non-participating ones. The payment period on a Limited-pay Whole Life policy can be anywhere from 10, 15 to 20 years, or even until age 65. Unity Life has a unique Limited-pay Whole Life Plan called Life Option Enhanced, which allows the insured to select the pay period for the policy.

The following is a snapshot of the top five non-participating, 15-year-pay Whole Life policies with $250,000 of coverage for a 40-year-old male, non-smoker:

Union of Canada:  $285.79/month

Wawanesa:  $323.10/month

Assumption Life:   $326.48 /month

Unity Life:   $333.45/month

La Capitale: $342.08/month

It should be noted that the guaranteed cash values in Limited-pay policies can also vary dramatically between companies. In the above example, Wawanesa’s guaranteed cash value at the end of 15 years is $12,000, whereas Assumption Life’s guaranteed cash value following the same length of time is $32,000.

You can get a Limited-pay Whole Life insurance quote at our free Whole Life Instant Quote Page, or you can call us at 1.866.899.4849

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  • LSM Insurance
    February 22, 2012 at 1:10 pm

    RBC Insurance had a Term policy with a return of premium feature but this was pulled from the market a few years ago.

    You may want to investigate a Universal Life policy with Annual Renewable Term option be sure to look into the cost structure and fees and surrender penalties.

  • Jiten
    February 22, 2012 at 9:29 am

    Are there currently any term life insurance products that pay back the premium at the end of the term?

  • LSM Insurance
    November 29, 2009 at 11:21 am

    Hi Ameedah,

    Thanks for the note. I’m not clear what you mean by straight life policy. Life insurance falls into two categories Term and Permanent. A Whole Life plan falls within the Permanent category. The cost starts off higher but is level. As discussed above Whole Life plans can payable for life or paid up after a limited number of years.

    Regards … Lorne

  • ameedah johnson
    November 29, 2009 at 1:08 am

    Is a limited pay whole life plan more economical than a straight life policy?