If you’re searching for a life insurance policy that provides coverage and financial protection for your loved ones and also offers investment opportunities, then participating whole life insurance in Canada is your best bet.
This type of policy allows you to benefit from the insurance company’s profits while you’re still alive. It allocates a portion of your premium to mutual funds and delivers dividends annually to you.
In this blog post, we’ll delve into the details of participating whole life insurance, discussing its pros and cons. Additionally, we’ll clarify the distinctions between participating and non-participating whole life insurance policies.
What Is Participating Whole Life Insurance?
Participating life insurance policy is a type of whole life insurance that sets itself apart by generating dividends throughout the duration of your policy. These dividends, in addition to your death benefit, are a key feature of this policy.
Your dividends are directly tied to your insurer’s performance and profits. This policy is especially appealing because you get to share in your insurer’s earnings while you’re still alive.
The insurance company pools and invests the premiums you pay, and the resulting earnings from these investments are distributed to policyholders as dividends. These dividends are sourced from the surplus profits of the insurer’s participating investment fund.
However, it’s important to note that unlike the guaranteed death benefits offered by this type of insurance, the dividends are not guaranteed. Their value can fluctuate based on the performance of the investments in the market.
Due to the potential for annual dividends, participating whole life insurance policies often come at a higher cost than other insurance options, such as term life insurance or standard whole life insurance policies.
Like other whole life insurance policies, participating insurance policies, like the Manulife Par Life Insurance, come with fixed premiums. This means you’ll pay a consistent premium amount throughout the entire life of your policy.
Participating Vs Non-Participating Whole Life Insurance
In contrast to participating whole life insurance policies, non-participating insurance policies offer simplicity and lower premiums. They may not generate annual dividends, but they provide lifetime protection, guaranteed cash value, fixed premiums, and a guaranteed death benefit.
If you seek an insurance policy that ensures a death benefit for your loved ones with minimal premiums, a non participating whole life insurance policy is the way to go. These policies are a straightforward, low-risk choice.
On the other hand, participating whole life insurance policies come with higher premiums. If you’re interested in an insurance option that combines lifetime protection with an ongoing investment opportunity, along with annual dividends and fixed premium rates, participating whole life insurance is an excellent fit.
It’s essential to note that non-participating whole life insurance is risk-free. With a participating whole life insurance policy, you share the investment risk with the insurer. While this can be advantageous when investment earnings are high, it may become more complicated when investments experience fluctuations. So, your choice depends on your financial goals and risk tolerance.
Different Types of Dividend Options for Participating Whole Life Insurance
When it comes to receiving your dividends from a participating whole life insurance policy, you have several options available, and the choice often hinges on the specifics of your contract. The most common types of participating whole life insurance policy options include:
- Premium Reductions: You can choose to use your annual dividends to offset your life insurance premiums or a portion of them. This choice allows you to decrease the amount you pay as premiums each year. However, it’s important to note that you can only use dividends to reduce premiums if you have an annual premium payment plan. For instance, if your yearly premium amounts to $800 and your policy accumulates dividends of $300 in a given year, you would only need to pay $500 as your premium to the insurer.
- Buy Paid-Up Additional Insurance: Another option is to utilize your policy’s dividends to purchase additional life insurance, which gets added to your existing policy. This is an attractive choice if you wish to augment your insurance coverage and future dividends. Additionally, it enables you to build up a cash value that grows on a tax-advantaged basis.
- Receive Dividends in Cash: Alternatively, you can receive your dividends as a direct cash payment from your insurer annually. However, knowing that this option may subject your dividends to income tax is important.
- Deposit/Cash Accumulation: In this case, your insurer places your dividends into an interest-earning account. This allows you to earn interest on your dividends, which grow at a predetermined rate. The advantage is that you can withdraw these accumulated dividends at any time.
Benefits And Downsides of Participating Whole Life Insurance Policy
It’s essential to weigh the pros and cons of participating life insurance carefully, considering your financial goals and budget constraints before deciding. Let’s examine some of the pros and cons:
- Increased Coverage: Participating life insurance policies allow you to augment your existing coverage without undergoing an underwriting process. This enables you to accumulate more cash value and boost your death benefit.
- Additional Income Stream: Participating whole life insurance policies can provide an extra source of income. They pay out annual dividends when your insurer performs well financially. While dividends are not guaranteed, most companies distribute them yearly.
- Stable Premiums: With participating life insurance, your premium remains constant for as long as you live.
- Cash Value Component: Participating whole life insurance policies include a cash value component that grows tax-deferred. You can withdraw or borrow against this cash value and utilize the funds for various purposes during your lifetime.
- Non-Guaranteed Dividends: The returns on your policy are not guaranteed. You only receive annual dividends if your insurance company performs well financially. If the company experiences financial difficulties, you may not receive any dividends.
- Higher Premiums: Participating whole life insurance policies typically have higher premiums than non-participating policies. You pay five to fifteen times more in premiums than you would for a term life insurance policy.
Best Participating Life Insurance Companies in Canada
Canada offers some of the best insurance companies with participating whole life insurance policies. When considering participating life insurance, it’s essential to carefully review the policies and options offered by these companies to find the one that best aligns with your financial goals and needs.
Additionally, consulting with a qualified insurance advisor can help you make an informed decision regarding the right participating life insurance plan for you.
- Canada Life Participating Life Insurance: Canada Life is a well-established insurance provider with a strong reputation for offering participating life insurance policies. Their plans often provide policyholders with the opportunity to earn dividends, which can be used to increase the policy’s cash value or be paid out to the policyholder.
- Sun Life Participating Life Insurance: Sun Life is one of Canada’s largest and most respected insurance companies. They offer participating life insurance policies that allow policyholders to benefit from potential dividends and enjoy financial security. Sun Life has a long history of serving Canadian customers.
- Equitable Life Participating Life Insurance: Equitable Life is known for its robust participating life insurance products. They focus on policyholder dividends and offer various options to customize policies to meet individual needs. Equitable Life is a trusted name in the Canadian insurance industry.
- RBC Participating Life Insurance: RBC Insurance is affiliated with the Royal Bank of Canada (RBC) and provides participating life insurance options. Their policies often feature competitive dividend potential and a range of supplementary benefits. RBC is a highly reputable financial institution in Canada.
- Manulife Participating Life Insurance: Manulife is a prominent provider offering participating life insurance solutions. They allow policyholders to accumulate cash value and receive dividends over time. Manulife has a strong presence in the Canadian insurance market.
Final Thoughts on Participating Whole Life Insurance Policy
Participating Whole Life Insurance is a dependable financial tool that can provide you with lifelong coverage, the potential for additional income through dividends, and the peace of mind that comes with knowing your premiums won’t fluctuate.
If you’re looking for a secure and enduring investment in your financial future, consider exploring the benefits of Participating Whole Life Insurance today. Don’t miss out on the opportunity to safeguard your loved ones and secure your financial legacy.