High Cash Value Participating Whole Life Insurance … Building Your Warehouse of Wealth?
Learn what whole life insurance is about.
In 1847, dividend paying participating whole life insurance was first introduced in Canada. The company was named Canada Life, and continues thriving to this day. The very first policy was issued to a female life insured. Life Insurance Companies in Canada have declared and paid dividends on participating dividend-paying whole life insurance going back to the year 1848. That’s a track record unmatched and for the past 173 years, Canadians have benefited from this financial tool.
It is important to highlight the participating aspect. Participating means that you become a part owner of the Life Insurance Company, and that you “participate” in the divisible surplus generated every year. Inside the company, there is a very large pool of money referred to as “the participating account”. Each year the accountants meet with the board of directors who ask “how did we do at managing the company this year”? Each year where there is a surplus, a dividend is declared. And once a dividend is declared, it is contractually guaranteed to be paid, it cannot be repossessed and it cannot lose value … ever. Over time, annual dividends can become very substantial.
Learn what whole life insurance is about.
The life insurance companies who administer participating dividend paying whole life policies use actuarial science to engineer a profitable outcome. When designing a policy, the actuary determines the minimum premium required in order to achieve the contractually guaranteed payment of the death benefit and daily accumulation of cash value. They also take into account a capital surplus reserve, meaning more premium is collected than what is actually required. Their mandate is to meet the guarantees of a contract that deals with a theoretical 100 year lifespan, as well as supporting a strong stable dividend payment for their par policy owners over that same period of time.
By Age 100, the Total Cash Value is contractually guaranteed to match the Total Death Benefit. There is no pandemic, bad economy, or government intervention that can take any of the accumulating value away.
One of many advantages of this tool are the contractual guarantees. A policy is a unilateral contract. It is NOT an investment. One of the contractual guarantees of a participating, dividend paying whole life insurance contract in Canada, is that by age 100 the total cash value must equal the total death benefit. This guarantee can be enhanced by electing to have the annual dividends purchase fully paid up additions of death benefit. A paid up addition (PUA) is another layer of death benefit that is fully paid up. Each time the total death benefit increases, the total cash value must also increase and so each day that you’re aging closer to 100, the values are rising, creating a growing pool of financial value that can be utilized over your lifetime.
In other words … You don’t have to die to WIN
It is important to be aware there are a variety of whole life insurance structures along with several policy design options. For example, there is whole life insurance that’s referred to as non-participating (non-par) and this type of whole life insurance policy does not receive dividends. The policy owners do not share in that ownership structure. Non-par owners are not able to participate in any of the profits or extra divisible surplus that is generated by the insurance company. This type of insurance is still widely available in Canada today but it is not as common as Participating Dividend Paying Whole Life. That is why it is important to work with someone who is thoroughly familiar with how to design your policy for maximum cash value and death benefit accumulation.
The policy owner pays premiums. Those premiums are deposited into the participating account of the life insurance company. The company puts that money to work, primarily in instruments like guaranteed fixed income, to grow that money in order to satisfy the legally binding contractual guarantees, or promises to pay. They also set aside money as a “continuing capital surplus reserve”, a requirement in order to operate as a Life Insurance Company in Canada.
The policy owner outranks EVERYBODY … meaning they have first access to whatever can be lent from their policies. Policy owners exercise that rank via policy loans.
Before and after the introduction of the mutual fund industry and tax qualified plans like a RRSP, participating dividend paying whole life remains one of the safest and most secure places for money to reside. And the truth is your money must reside somewhere. If your money can reside inside a life insurance company, using a legally binding contract that:
Makes you a co-owner of a business with a 173 consecutive year track record of generating profit. Grows your total cash value on a daily basis with no accrual taxation Guarantees tax free death benefit dollars in exchange for pennies. Gives you total and absolute control over a growing pool of financial value that can be accessed to take advantage of opportunities that will track you down. Cannot lose value or ever be lost to a risky stock market or government intervention.
What better place to have your money reside than here?
And every once in a while somebody dies. And when they do, a tax free windfall shows up when it’s needed the most. It’s been said there are two certainties in life (1) death and (2) taxes. Death is the only thing that doesn’t get worse each time politicians meet. Ask yourself “will the government need more or less money in the future”? Nobody knows what tax rates will be in the future, but if they do rise, tax free becomes instantly more valuable. The proceeds of the policy are paid to your named beneficiaries’ income tax free.
And if you are a business owner, there are plenty more advantages in addition to a personally owned policy. The death of the shareholder gives rise to the Capital Dividend Account (CDA) and surviving shareholders can access the proceeds, and potentially more via tax free capital dividends.
There are many differences. Primarily, with dividend paying participating whole life insurance, you actually build equity in the policy and become a co-owner of the life insurance company. 100% of the risk of satisfying the contractual guarantees is with the Life Insurance Company. The policy owner’s sole responsibility is to pay the premium. With Universal Life, 100% of the risk is transferred away from the Life Insurance Company onto the policy owner. There are no guarantees and there is no participation in the divisible surplus.
The short answer is it depends. Each type of life insurance has its own set of characteristics. Term life insurance does serve a purpose. It’s temporary coverage meant to solve temporary problems. It’s akin to renting versus owning. And as you age, the premiums rise because you’re getting closer to your best before date. Participating dividend paying whole life insurance premiums can never go up. They can go down, but never up.
If you have more questions, please connect with one of the Coaches on the Ascendant Financial team.
Since 1847 in Canada.
We have expert financial advisors and coaches that can help you implement high cash value whole life strategies in your life. Register for the Whole Life Insurance training so that you can book a time with your own advisor.