A participating whole life insurance policy provides tax-free growth while you’re alive and a tax-free lump-sum payment to your beneficiaries when you die.
What is participating whole life insurance?
Participating whole life insurance is a type of permanent life insurance. It provides you with guaranteed lifetime coverage as long as you pay the policy premiums. Premiums stay the same throughout the premium paying period, so that even as you age or experience health issues, your costs to maintain the policy will not increase.
Beyond its insurance protection, a whole life policy has a tax-advantaged investment component that can help you build a larger estate than you could in a taxable account. The cash value that accumulates in your policy grows free of annual taxation.
Participating whole life insurance allows the policy owner to “participate” in the insurance company’s profits. Each year, the company assesses its profit with the participating investment fund’s actual claims and expenses. These profits are then redistributed to you, the policy holder.
Although these payments are not guaranteed, most companies have rarely skipped a year of distribution.
These dividends can be taken in cash, left to accumulate or, most commonly, used to purchase additional paid-up insurance.
Benefits at a glance
Participating whole life insurance provides the following benefits:
Death benefit. The death benefit and any paid-up additions are distributed tax free to named beneficiaries, thereby enhancing your estate.
Annual vesting. When policy dividends are used to purchase additional paid-up insurance in your policy, they form a new accumulated cash value “floor” that is guaranteed and cannot be reduced, unless initiated by you, the policy owner.
Account growth. Guaranteed cash values and policy dividends kept in your policy are not subject to tax on the growth during your lifetime. This will help you meet your long-term financial goals and transfer assets efficiently to your beneficiaries.
Access to cash. You can access the accumulated cash value of your policy at any time. It is accessible through policy loans, through policy withdrawals of the cash value or by pledging the accumulated cash value as collateral for a tax-free line of credit — all of which provide you with added liquidity and flexibility.
Benefit from professional management
MD Financial Management works with some of the most established and reputable life insurance companies in Canada. Participating account assets are managed by experienced teams of investment professionals, at each respective insurance company, who are committed to maintaining asset quality, effective diversification and adherence to risk management.
Safeguards from high volatility exist through each insurer’s use of a reserve fund. In years when participating accounts show exceptionally strong returns, a portion of the return that is eligible for policy dividends is diverted to the reserve fund. This reserve is intended to offset any years of weaker investment performance in the future and provide greater predictability of credited policy dividends.
To learn more, talk to your MD Advisor* about how a participating whole life policy issued by some of Canada’s largest life insurers can be an integral part of your wealth management plan.
*MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.
Insurance products are distributed by MD Insurance Agency Limited. All MD employees dealing with clients regarding insurance products hold life licences.
The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.