Which Whole Life Policy is Best?

LSM helps readers between whole life insurance options
LSM helps readers between
whole life insurance options

Non-participating whole life policies are a form of coverage where there is a guaranteed cash value, but they do not pay out an annual cash dividend. These types of policies mainly have fixed premium rates, but recently, there has been a trend towards adjustable premium rates — with the adjustable premium rates tied to the interest rates.

If interest rates are low, premium levels would either stay the same or go higher. If interest rates go up, premium rates go down. While this can result in lower premium rates than other products, with the current low interest rate trend, consumers are more likely to see rates go up as well. Since most companies do not have a premium cap, there is no fixed limit to how high they can charge.

Participating whole life insurance products are often seen as more of an investment vehicle, because unlike non-participating they pay out an annual dividend as well as having a guaranteed cash value and life insurance.

Like any other financial product, it is important for Canadians to look at purchasing some form of life insurance. Whole life insurance policies offer many benefits well beyond just the death benefit, and they can help protect the financial futures of those who purchase them.

For more details on which whole life insurance policies are best, please contact us at 1-866-899-4849, or visit our whole life insurance quote page
 

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  • Teri
    December 3, 2013 at 6:31 pm

    Still no answer to my question.

    How can you most Whole Life are not sold based on the investment / money back concept.

    Advisors sell Whole Life insurance based on the tax sheltering concept and how this money can be used for a rainy or to supplement your retirement. As mentioned The insurance companies themselves push this concept all the time

  • Syed Raza
    December 2, 2013 at 6:53 pm

    Solid points @Ami. I totally agree with your point on par-whole life dividends really just being over funded premiums being paid back to the policy holder.

    Carriers make it seem like premium payors are ‘sharing in their positive financial performance’ when really the dividend is simply a partial return of the premiums that were likely too high to begin with. If the dividends are used to buy paid-up additions or taken as cash there’s actually no investment element whatsoever.

    One good use of this type of policy I’ve seen is quick pay par-whole life with the paid-up addition dividend option used to insure the lives of young children. The parent’s plan was to pay it up after 20 years and then gift the policy to the child. The paid up additions grow the face amount over time and the cash value can be accessed for education costs or anything the child may need to start their own life. The old Empire Optimax III was great for this strategy.

    Thanks for sharing!

  • Tim D
    December 2, 2013 at 5:35 pm

    In my years as a life insurance broker, I have yet to meet one person who, after quoting to me the once popular mantra of “buy term and invest the rest,” has actually gone on to invest the rest. In today’s economic interest rate climate, life insurance plans, especially whole life plans, remain at the top for wise investing on behalf of one’s beneficiaries. With all the death benefit claim cheques that I have delivered over the years, I have yet to hear one beneficiary express remorse that the premiums for the policy could have been better used/invested. A whole life plan, like any type of insurance plan (including the ones consumers willing purchase on their new flat screen TV)needs to properly fit the insured’s needs and budget. Otherwise it amounts to a waste of money and a poorly planned investment.

  • Ami Maishlish
    December 2, 2013 at 5:28 pm

    Frank Z/Teri:

    Suze Orman’s recommendations relating to the importance of getting out of debt are worthwhile. However, I seriously question the efficacy of some of the “advice” she dispenses about life insurance. Also, keep in mind that commercial media plays the tune that is ordered by their paymasters. Also see: http://finance.yahoo.com/blogs/daily-ticker/don-t-money-advice-suze-orman-dave-ramsey-122754956.html

    • LSM Insurance
      December 2, 2013 at 5:35 pm

      That’s an interesting video – I like the point about wholesale advice for millions of people is not always what it’s cracked up to be.

  • Frank Z
    December 2, 2013 at 5:04 pm

    If you think I’m full of hot air look at Sue Orman http://www.youtube.com/watch?v=WzgtWfQngII enough says on the value of Whole Life Insurance there is no value

  • Ami Maishlish
    December 2, 2013 at 3:42 pm

    For now, I elect to ignore the postings by “Frank Z/Teri”, only to say one thing, and that is that I sincerely hope that consumers are given better and more educated advice then given though the postings by this agent.

    Moving onto some good news for consumers: As reflected in today’s December 2 update of LifeGuide, Empire Life has, as of today adjusted its premiums on its competitive Hybrid Solution 100 Interest Sensitive Whole Life product, reducing the premiums from the 2%-2.99% table to the 3%-3.99% table. This applies to existing as well as new policies. (see also my point #3 in my posting of 12/01/2013 at 1:03 pm.

    As to interest rates, it’s akin to an elevator in an office building. If you are in the basement, the elevator can only go up and if you are on the top floor, the elevator can only go down. However, when you are on one of the other floors in the building the elevator could go either way.

    • LSM Insurance
      December 2, 2013 at 4:43 pm

      Thanks for sharing the update on Empire Life.

  • LSM Insurance
    December 2, 2013 at 1:45 pm

    @ Frank. Further to one of Ami’s point it’s simply not true that Whole Life policies are insurance companies most profitable products. In general terms Guaranteed Permanent policies are in fact much less profitable and for many companies loss leaders in today’s low interest rate environment.

  • Teri
    December 2, 2013 at 1:38 pm

    Ami, how can you most Whole Life are not sold based on the investment component.

    How many advisors sell Whole Life insurance based on the deferred deferred sheltering concept and how this money can be used for a rainy or to supplement your retirement. The insurance companies themselves push this concept all the time.

  • Frank Z
    December 2, 2013 at 9:35 am

    Two examples come to mind of where Whole Life policies have been ripping off the public for years

    One: Norwich Union / AIG / BMO Insurance Whole Life policy based on poor Patrick being sucked in to buy life insurance. Patrick didn’t got a good deal because he was paid to the commercials but everyone else got ripped off

    Two: The endless slew of companies sued for vanishing premiums and many of these lawsuits are still come. The premiums didn’t vanish but peoples money sure did.

    Why not buy a 20 year Term pay off your debt and save the rest and keep the profit the yourself instead of paying for a bunch of highrise building and box seats.

  • Ami Maishlish
    December 1, 2013 at 6:19 pm

    To “Frank Z”. I’ve heard the slogan “Buy term and “invest” the difference. That slogan is almost as useful as an umbrella is for SCUBA diving!

    Even if I was to accept your unsubstantiated claim that whole life plans make insurance companies rich (which is not necessarily so as evidenced, for example by the withdrawal of WL plans by some companies). Could you please pleasure us with your explanation as to why would a for profit business discontinue (what you claim to be) their most profitable product line?

    Please keep in mind that all life insurance products have cash reserves. That, by the way includes all “term” products.

    The construct of a level DB Whole Life insurance policy is made up of two primary elements:
    1. A decreasing risk assumption (aka “decreasing term”), and
    2. A correspondingly increasing cash reserve.

    The sum of the two elements equals the death benefit.

    Now, the “revelation”, that level premium “term” is constructed similarly, with the same two elements.

    But…

    In Whole Life insurance, the policyholder has access to the policy cash reserves without having to die to qualify. That access is commonly known in life insurance jargon as “Cash Surrender Value”.

    On the other hand, with “term” you must die to qualify and you must die to qualify before the term policy dies. If you don’t die before the term policy dies, the insurance company – guess what – keeps the cash.

    The entirety of the above, however, is irrelevant since what matters is what best suits the consumer’s needs and circumstances. Full Stop!

    The subject of insurance is not a political campaign for politicians to heat the air with empty slogans. Rather, life insurance is a financial service product that comes in many forms and merits the services of knowledgeable, consumer interest oriented advisors who are equipped with the most advanced research tools.

    “Frank Z”, if you can back up and substantiate your statement, please do post it and let’s see how much (if any) credibility there is. (Please, facts and figures but no slogans). Thanks.

  • Frank Z
    December 1, 2013 at 3:45 pm

    Who are you kidding Whole Life plans only make the insurance company company and their brokers rich – buy Term and Investment simple and easy. Don’t make insurance more complicated than it needs to be

  • Ami Maishlish
    December 1, 2013 at 1:03 pm

    Note: In order to follow my comments below, and to establish context, I would suggest that you first read the referenced article in full.

    Within the context of the article:
    1. “Dividends” on “participating” life insurance policies:
    Please note that “dividends” on life insurance are NOT to be viewed in the same light as dividends on stock or MF investments. “Dividends” on so called “participating” life insurance policies are in fact a return of premium over-payments. Thus, “dividends” on “participating” life insurance policies are akin to “change” that you would receive if you paid for an $18 priced item with a $20 bill. The “dividend” on “participating” life insurance policies is more similar to the value of “points” that you would get by paying for purchases with some credit cards (in essence, return of some of the money that you have already paid) than a distribution of corporate profits as investment dividends.

    2. Per “recently there has been a trend towards adjustable premium rates. With the adjustable, premium rates are tied to the interest rates.

    If interest rates are low, premium levels would either stay the same or go higher, if interest rates go up, premium rates go down.”:

    There are currently onlyh two (2) such life insurance contracts offered in Canada through the brokerage distribution system. These are Empire Life’s “Hybrid Solution 100”, a whole life policy contract, and Industrial Alliance’s “Trend”, a universal life policy contract. Both contracts have a contractual max to which premiums could rise in a worst-case scenario. Both of these Interest Sensitive products are included, with extensive detail, in the LifeGuide Professional Software. Both are also included in the InteliComp multi-platform software (Note: LifeGuide and InteliComp are different products but both are products of CompuOffice Software Inc.). While there are currently only two insurance companies offering competitive Interest Sensitive contracts through the brokerage distribution channel, it is likely that other insurers would follow suite but that remains to be seen.

    3. Per “with the current low interest rate trend, consumers are more likely to see rates go up, as well, since most companies do not have a premium cap, there is no fixed limit to how high they can charge.”

    I respectfully disagree with the above-quoted statement, as both Interest Sensitive products (Empire’s and Industrial Alliance’s) DO have a worst case scenario premium cap. Moreover, interest rates are “snailing up” as could be seen with the “canary in the coal mine” recent rise in mortgage rates. Hence, and as a consequence to a rise in interest rates, I foresee lowering of premiums rather than increased premiums for these Interest Sensitive products in the not too distant future.

    Just as interest rates spiked high in the early 80s, my observation is that these are currently spiked at historic lows. Barring an international catastrophe, such as the collapse of the Chamberlainean appeasement deal struck in Geneva recently, world economic indicators point to a gradual rise in interest rates. As interest rates rise, premium costs of these interest sensitive life insurance products will more likely drop than increase (See product descriptions in LifeGuide). Empire Life’s “Hybrid Solution 100” product actually states the interest rate points at which premiums would decrease while Industrial Alliance’s “Trend” would adjust premiums at the 10th policy year and in 5-year intervals thereafter.

    4. Per: “Participating whole life insurance products are often seen as more of an investment vehicle, because unlike non-participating they pay out an annual dividend as well as having a guaranteed cash value and life insurance. ”

    I also respectfully disagree with the above quoted statement. For context, see also my comment under #1 above. The only “investment” element possible with life insurance policy “dividends” is if the insurance company provides the option to “leave the “dividends” on deposit”. In such, the only investment return would be any interest paid on such funds left on deposit with the insurance company but NOT the principal left on deposit.

    General comments: (my words within the quotation marks): “Choice and visibility drive competition”, and “Free and open competition drives pricing to the value line”.

    There is a wide choice of “term” life insurance policy contracts offered on the market, with just about every insurance company that is selling individual life insurance offering a portfolio of “term” insurance policies. Nearly all life insurance companies disclose the details (including premium costs) of their “term” insurance portfolios for open and objective comparisons. Hence, there is vibrant competition among life insurance companies for their respective “term” insurance offerings driving pricing to the value line. The quantitative value and relative quantitative values among life insurance offerings are easily observed when examined for Internal Rate of Return (IRR) (This, of course, is provided for in LifeGuide as the IRR is a most valuable analysis and comparison approach). In part due to the vibrant competition among life insurers for “term” market share, the IRR for “term” is generally (there are exceptions to every rule) is higher than for other forms of life insurance (Note: This is provided that death occurs during the term of the policy contract. The IRR drops to 100% negative territory for “term” if the life insured survives the policy expiry).

    This is not so for “participating” life insurance policies where the IRR in terms of risk transfer (relative to the death claim minus “dividends” that would be payable if the life insured died while the policy was in force). In contrast with the vibrant competition, open general disclosure of quantitative detail for objective comparison, and high exposure given to “term”, the opposite is true for many of the so called “participating” life insurance contracts. Consequently, competition relative to “term” for these products is at a virtual low and insurers are not as hard pressed to “sharpen their pricing pencils”. It’s like the question of “which came first, the chicken or the egg” insofar as open disclosure of quantitative detail to facilitate objective independent multiple company comparisons of “participating” Whole Life policies. Logic would suggest that insurers who believe that their “participating” Whole Life policies are competitive are interested in having their products compared objectively and independently and the converse for those carriers who don’t. The proverbial “bottom line” is that competition among life insurance companies for market share in “participating” Whole Life is low, as in “very low”.

    IMO, and viewing this from the consumer’s perspective, Empire Life’s “Hybrid Solution 100” is a very attractive product that deserves serious consideration for situations where life insurance coverage is needed for the long term and/or essentially “for life”. (Note: I don’t sell insurance nor do I represent Empire Life. My observation on their “Hybrid Solution 100” product is strictly based on value and on my belief that we are currently at historical lows for interest rates, and that the most likely scenario will be that interest rates will rise to trigger a nice bonus of lower contractual premiums.)