Permanent Life Insurance
Posted 06 Jun 2014 by Melissa Allan
There are not many guarantees in life but participating life insurance is built on a foundation of guarantees, offering guaranteed values and tax-advantaged growth that can be accessed during your lifetime, plus the opportunity to receive policy owner dividends. Having access to the cash value during your lifetime could help you during touch economic times. *
I wanted to share with you the value of permanent life insurance and how it could be a useful tool for you. The primary reason for life insurance is so that when you die it pays out tax-free to your named beneficiary but permanent life insurance has additional benefits that can be used from a strategic approach as well. Some of you may have heard of whole life insurance. Whole life insurance may also be referred to as permanent insurance and is one of two kinds of insurance. Unlike the other kind of insurance, temporary insurance, whole life does not terminate at a set duration and provides lifetime insurance protection, providing premiums are paid. These are two types of permanent insurance; participating and non-participating life insurance.
Participating life insurance provides a level premium, and cash value included in the policy, guaranteed by the insurance company. Not all companies offer “participating” whole life insurance policies however, Great-West Life is one of the companies who do. By participating, I mean that they may distribute a portion of the earnings of the participating account as participating policy owner dividends, based on your participation in a pool of other participating policies. Policy owner dividends are not guaranteed, however Great-West Life has distributed dividends to its participating policy owners every year for 100 consecutive years! Even in economic difficulties when markets are volatile, Great-West Life has paid these dividends.
I see participating life insurance as a valuable asset for individuals wanting to do estate planning. For instance, if you have maxed out on your RRSPs, Tax-Free Savings Accounts, and you have non-registered investments where tax is applied on the growth of your assets, you may want to look at life insurance as part of your estate planning solution when you need insurance coverage. If you used your non-registered assets to purchase a life insurance policy the potential growth remains tax-advantaged within certain legislative limits while within the policy. When you die, the death benefit passes to your named beneficiaries tax-free. With investments that remain in your non-registered investment account your estate may receive capital gains which may leave less to pass on to your children.
Participating life insurance offers you options while you are living. For example, you may be able to access policy cash values to enhance income and subsidize income from your other investments. Or, if you don’t need the money, you can leave it in the policy to grow. If it is paid out as a life insurance benefit at your death, the death benefits is paid out tax-free to your named beneficiary.
If you withdraw cash value from the policy, there may be some tax consequences, depending on how you access the cash value. However, if the funds were left in a non-registered account the growth would be taxed along the way. Depending on the type of non-registered investment, capital gains may be triggered.
Participating life insurance is comprehensive and can be considered for a wide variety of reasons or scenarios. It’s certainly not the “be all, end all” product for everyone but some of you may really benefit from a life insurance policy and its cash value component depending on your goals in life. It can be used to help increase your wealth, leave a legacy, enhance your retirement income, and protect your family. We all want to protect our assets and diversification is the key.
Insurance companies have built their products keeping in mind the markets are going to change. In my opinion, Great-West Life has done very well at designing their participating products for the long term. If you would like further information or to see if this product would be good for you given your financial situation, please let us know.
* Withdrawals or loans from your policy reduce the death benefit and cash value. These withdrawals or loans may be subject to tax.