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The Value of Participating Life Insurance

Participating insurance can serve a variety of purposes for both individuals and businesses.  For business owners, it may work well as a tax planning vehicle.  For individuals, it may serves as a way to provide a modest inheritance to their loved ones after they are gone. Whatever the purpose of the policy, Participating insurance comes with a set of characteristics that offer great value to the policy owner

What You Need to Know

What Does Participating Mean?

First things first:  Participating policies are unique because in purchasing the policy, the policy holder is assuming some of the risk associated with the policy along with the insurer. A portion of the premium paid is invested in the insurance companies participating account. If the participating account performs in any given year then the insurance policy will receive a dividend from the insurance company.  This is where the name participating life insurance come from.

Understanding the Dividend Options

When you purchase a participating life insurance policy you will be required to select a dividend option.   The dividend option you select will instruct the insurer on how you want your dividends allocated. This is of great advantage to the policy holder.  Policy holders have the option to take the dividend in cash or reallocate it within the policy to make the policy stronger and increase its value. The ability to pick how your dividend is allocated gives you great flexibility when managing your policy.  Your advisor can help you understand and choose a dividend option that works best for you.

Benefits to the Policy Holder

Participating policies provide policy holders with reliable, permanent insurance coverage. Below are a just a few of the benefits:

  1. Level Premiums
    Premiums are set at the time of underwriting and remain level for the lifetime of the policy.  This is advantageous compared to term insurance and other types of permanent insurance that may have premium increases.
  2. Flexible premiums
    Automatic premium loan is a provision in participating life insurance policies that allow the insurer to automatically take the premium out of the value of the policy.  This is valuable for a variety of reasons but especially for older individuals who may be prone to forget bills or are transitioning to a family member taking over their finances.  This allows a premium to be missed without the policy lapsing, therefore preserving the value built up within.Policy holders also have the option of putting their policies on “premium offset”.  This means that the policy has accumulated enough value to pay for itself and the policy owner can take a break from paying their premiums.  This is exceptionally valuable for people on a fixed income who may not have the extra money to keep their policy in force.
  3. Cash Values
    Participating Life Insurance accumulate an account called the “cash surrender value”.  This account is held within the policy and is used for a number of reasons. Firstly, if the policy were ever cancelled the policy owner would be entitled to the entire amount accumulated in the account. Secondly, the policy owner has the ability to borrow the money without lapsing the policy.  This can be done through a loan from the insurer or by borrowing against the cash value with a third part lender.
  4. Death Benefit
    Last but not least, participating life insurance provides the insured with a guaranteed death benefit.  This benefit may remain level or grow significantly, depending on the dividend option you choose and the policy performance.  A policy that is bought when an individual is young could grow to be a substantial estate planning tool by the time the insured is in their senior years.

Executive Summary

Participating insurance is one of the most valuable financial planning tools available.  While it may not be for everyone, most people can benefit from investing in a well put together participating whole life policy.

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