Whole life insurance is a kind of permanent life insurance policy designed to pay a death benefit to beneficiaries if the insured person passes away. Participating whole life insurance offers lifetime coverage, guaranteed cash value and the opportunity to earn dividends.
What is Whole Life Insurance?
Money that you and every other whole life insurance policy owner pays and puts it into a separate account. This type of whole life insurance has a savings component that is professionally managed and usually distributes a dividend. It can generate substantial cash value which can be accessed at any time due to compounding interest over several years. You can access your policy’s cash value in several ways: Borrow from your policy, use it as collateral for a third-party loan or withdraw cash value. This may affect your coverage, and you may have to pay taxes, but it can also help you afford luxuries or endure an emergency. Whole life focuses on slow, steady growth to create the largest estate benefit possible.
Who is Whole Life Insurance For?
Whole life insurance is ideal for Canadians who want to:
- Accumulate tax-preferred cash values that you can access
- Earmark a source of funds to cover final expenses
- Help offset the taxes payable on your RRSP or RRIF at passing
- Maximize the value of the estate you plan to leave you loved ones
- Minimize the impact of taxes on capital gains of your cottage
- Provide a financial foundation for children and grandchildren
- Replacing your lost future income in case of your death
- Supplement your retirement income
How Does a Whole Life Insurance Policy Work?
Whole life insurance is one type of permanent insurance. It is insurance protection for your whole life! It is strong, flexible, and built on a foundation of guarantees. Safely and securely reach the cash values you are targeting. Whole life insurance gives you lifelong protection and value you can access for cash. It is lifelong coverage that pays whomever you choose a tax-free payment when you die. Your policy is guaranteed to grow in cash value if you pay your premiums.
The Role of Whole Life Insurance
Many people avoid thinking about funerals until a loved one dies. The average start costs for a funeral in Canada is between $7,000 – $10,000. Life insurance is the most efficient way to finance these costs without placing any financial burden on the family at death. Canadians who have enough wealth to support their lifestyle and share their wealth with children and grandchildren. It’s an efficient way to transfer wealth to future generations, while maintaining complete control for as long as you wish. There is tax preferred growth of your cash value that can be accesses at any time.
Intergenerational Wealth Transfer
The grandparent pays the premiums and maintains control as the policy holder. The adult child is the life insured and contingent owner. They assume ownership from the original policy owner and can access cash value as the new owner. The grandchildren receive the death benefit tax free upon the death of the life insured. A life insurance death benefit is not subject to probate fees or taxes. By building cash value in a permanent life insurance policy, you achieve tax-preferred growth.
How Much Does Whole Life Insurance Cost?
Participating life insurance can be more expensive than term life insurance and universal life insurance, but it comes with guarantees: lifetime insurance coverage, premium options, payouts, and cash value. There are several variables that determine the cost of your policy. Generally, insurance is less expensive when you’re younger. A family history of chronic diseases and risky lifestyle or occupations can increase costs. Women live longer than men on average, so insurance may cost less for females.
Paid-up Additional Coverage
This option uses dividends to purchase additional paid coverage on a tax-advantaged basis. The paid-up additional coverage provides a guaranteed death benefit and guaranteed cash value. Dividends can be used to purchase additional insurance which may have associated cash value.
Additional Deposit Option
The additional deposit option premium rider enhances policy value and increases the flexibility of a participating life insurance policy. It maximizes the tax-efficiency for your estate by allowing for additional premium purchase to buy paid-up additional coverage. Pre-set maximum premiums are designed to help keep the policy exempt from taxation. Premium payments for this benefit may start and stop at any time in the future. This rider allows you to purchase additional permanent insurance with boosted cash values in the policy’s early years.
Your Policy’s Cash Value
Guaranteed growth. When your policy’s cash value grows, the new total is automatically guaranteed and is protected from declines, unless you use it for some other purpose. The only way the cash value decreased is if you borrow or withdraw the cash value. You can access your policy’s cash value in several ways: Borrow from your policy, use it as collateral for a third-party loan or withdraw the cash value.
