Participating Whole Life Insurance is a whole life insurance plan that provides you with permanent lifetime insurance protection and enable you to accumulate a cash reserve to use as a savings plan, for financial emergency, to supplement your children’s education fund, or to have additional funds for retirement and so on.

The word “Participating” means that you are eligible to participate in the surplus of the insurance company through dividends. The amount of dividends is not guaranteed.  It is calculated on an annual basis and is dependent on a number of factors, including interest rates, mortality, expenses, and taxes. Generally, dividends increase with the numbers of years the policy exits.

This insurance contract provides you with protection for life for a guaranteed level premium. There are two guaranteed premium payment options: level premiums payable for life and level premiums payable for twenty years.  The insurance contract provides you with guaranteed cash value, which you could get upon surrender of the policy to the insurance company.

How does this insurance work?

The insurance policy offers guaranteed basic permanent insurance when your death benefit does not change for life. You elect the coverage when signing the contract.

Besides this, your policy is eligible to receive annual dividends on the permanent insurance portion of your policy. You choose one of five dividend options:

1. Paid in cash or cash to reduce or pay premiums

2. On deposit

3. Paid Up Additions (PUAs)

4. Purchase Units in common stock segregated funds

5. Enhanced protection

Option 1.

If you have elected to receive your dividends paid in cash each year, the dividend paid may be subject to taxation.

If you have elected to use the dividend to reduce your premiums each year, any dividends payable will be applied to reduce the current year’s premium. If, in the future, dividends are sufficient to pay your entire required premium, you will receive any excess in cash. Dividends may be subject to annual taxation once the annual dividend is greater than the required premiums.

Option 2.

This dividend option operated similar to a saving account. Any dividends payable are deposited with the insurance company and will earn an interest rate. You have access to this cash and can make withdrawals at any time. Interest earned on the dividends left on deposit is taxable as earned and the dividends paid may be subject to taxation.

Option 3.

Dividends are used to purchase Paid Up Additions (additional policies), which are added to the basic policy and create another “layer” of permanent participating whole life insurance, eligible to earn dividends. Purchasing Paid Up Additions is the opportunity to have more insurance without providing further evidence of good health or new premium outlays. The dividends earned on the Paid Up Additions combined with the dividends earned on your basic permanent coverage can result in substantial increase in both the death benefit and cash value over the life of your policy.

Cash withdrawals are made by surrendering Paid Up Additions.

Option 4.

 This option is similar to Option 2, but with a little more risk and greater chance to earn income on your contributions.

Option 5.

Dividends are used to pay for the one-year term insurance and any excess is used to purchase Paid Up Additions.  So the total Death benefit will be higher than the guaranteed coverage.

 Illustration

Peter, 40 years of age, non-smoker,  invests in Participating Whole Life Insurance contract. Signing the contract he chose the Guaranteed Death Benefit - $50,000 and Dividend Option 3 – purchasing Paid up Additions

When this man turns 60, he can get $15,462 by surrendering Paid Up Additions of the policy. After this he will have only the guaranteed death benefit $50,000 and $16,900 in Cash Value.

If Peter had chosen a Dividend Option 1 (cash or premium off-set), he would have had the next coverage:

When the Insured is around 65 years old, premiums and dividends are approximately equal, and    he is not required to pay premiums from this point on. It is important to remember yet that dividends are not guaranteed; they will vary based on the performance of the insurance company.

Participating Whole Life Insurance provides you with life insurance protection and the opportunity for savings accumulation. You can add a variety of additional benefits and riders to your policy to make it a Plan for Your Whole Life and meet your long-term goals.

Contact us for more information and free consultation.

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