How Participating Life Insurance Works
Participating life insurance —also called whole life insurance—combines lifetime insurance protection with a tax-advantaged investment component.
You can use participating life insurance to:
- Pay final expenses and any debts you may have
- Ensure your family has the resources to maintain a comfortable standard of living
- Pay any taxes owing on your estate so more of your estate is transferred to your children or grandchildren
- Leave a legacy in your community or with your favourite charity
- Provide your business with the money necessary to fund a buy-sell agreement
- Protect your business against the loss of a key employee
During your lifetime, it can:
- Build tax-advantaged savings that you can draw upon as needed for personal or business opportunities; any cash values withdrawn from the policy may be subject to tax
- Supplement your retirement income
- Provide funds for long-term care or home care
Investment performance built for the long term
Participating insurance is a permanent life insurance product. But the investment performance of the par account is an important component in determining the long-term value of your policy.
When you purchase participating life insurance, the premiums you pay are credited to an account called the participating account with funds from other Life participating policies.
Participating policies are built on a foundation of guaranteed values (i.e. basic premium, basic insurance coverage, guaranteed portion of cash values and guaranteed portion of reduced paid-up values) that are determined using long-term assumptions for factors such as investment returns, mortality, expenses, lapses and taxes.
If the actual results in the participating account are collectively more favourable than the assumptions supporting the guaranteed values, earnings are generated in the participating account that become part of the participating account surplus (retained earnings). Each year, the company distributes a portion of the earnings as approved by the Board of Directors. Surplus is held in the participating account to maintain the strength and stability of the participating account into the future.
A team of professional investment managers invest the assets in the participating account. Assets held in the account include: publicly traded government and corporate bonds, residential and commercial mortgages, corporate lending, real estate, equity-related investments, short-term investments and policy loans.