Whole Life policies are generally divided into two categories 1) Non Participating whole life and 2) Participating whole life. For the most the former offer guaranteed premium and a guaranteed death benefit. The latter also offers guaranteed premiums and a guaranteed death benefit but they also offer a non guaranteed component called a dividend. These dividend paying whole life policies are higher in cost but can be very attractive to consumers looking to build additional cash value within their policy and potentially higher death benefits more on that later.
The dividend rate in a Whole Life plan is not guaranteed and is based on a the profitability of the insurance company and is also greatly impacted by interest rates. This has been particularly concerning in recent years with historically low interest rates becoming the norm the long term bonds many insurance companies are investing in are coming due and being reinvested in bonds with significantly lower interest rate this is having a negative impact on dividend rates.
Participating whole life insurance policies come with a variety of dividend
options.
In most scenarios, the insured can choose between dividend
options like cash, premium reductions, accumulations, paid-up additions or
enhanced divided options. The paid-up addition options is often the most
popular because it allows the applicant to use the annual dividends to purchase additional permanent insurance, which is added to the policy’s initial death benefit.
Over time, the initial insurance amount could double or even triple, depending on the company’s dividend rate. Once the face amount increases, it can never be decreased, regardless of changing market conditions. Not only will the insured be guaranteed the continuing growth of their insurance amount, but the guaranteed cash values also increase. Plus, the premiums on a participating whole life policy generally stay level for life.
As an added benefit these paid up additions are paid paid out on top of initial face amount tax free when the insured passes away.
For more details about on participating whole life insurance plans in Canada, please contact us at 1-866-899-4849, or visit our Whole Life Insurance Quote Page.
