Participating life insurance

Lifetime coverage with guaranteed values, and a share in the insurer’s results through dividends.

Book a call1-800-661-3300
Lifetime coverage
as long as premiums are paid
Guaranteed values
set in your contract
Cash value you can use
borrow against it or use it as collateral

How it works

Where dividends come from, and where they go.

Participating life insurance is whole life insurance that shares in the results of the insurer’s participating fund. Part of your premium goes into the fund, and when results are better than expected, you share in them through a dividend.

Your premium

Pays for your coverage. The rest goes into the fund.

Participating fund

Pooled and invested by the insurer for all participating policyholders

Based on investment returns, claims and expenses

Dividend

Declared each year when results allow

Not guaranteed

You choose how it’s used

  • Paid-up additionsBuys more coverage and cash value
  • Leave on depositEarns interest with the insurer
  • Reduce your premiumLowers what you pay
  • Take it in cashPaid to you, and may be taxable

Paid-up additions join your policy and earn dividends of their own, so growth can build on itself.

Why dividends change slowly

The insurer smooths the fund’s returns over many years. Dividends rise and fall gradually, instead of moving with every swing in the markets.

Chart: market returns swing sharply up and down, while the dividend scale moves gently.

Illustration only, not to scale. Dividends are not guaranteed. The biggest factor is investment returns, but claims, lapses, expenses and taxes also play a part. How dividends are calculated and paid, and the options for using them, vary by insurer and policy.

What’s guaranteed

What’s guaranteed, and what depends on dividends.

Your guaranteed values are set in your contract. Dividends add to them, and once a dividend is credited, it’s yours to keep. Only future dividends can change.

Chart of a participating policy from age 30 to 100, with today at age 55. Guaranteed values, set in your contract, stay the same throughout. Dividends already credited build on top of them up to today and then stay level, because they’re yours to keep. Future dividends, from today on, could add more, but they aren’t guaranteed.

Illustration only, not to scale. Future dividends depend on the insurer’s results and may be higher or lower than illustrated. A change to the dividend scale affects only future dividends.

Once a dividend is credited to your policy, it’s yours. If the dividend scale goes down later, your guaranteed values and the dividends you’ve already received aren’t affected. Only future dividends are. It’s a good idea to ask for an updated illustration every few years, especially after a change in the dividend scale.

Premium offset

Over time, your dividends and the cash value they build may be enough to cover your premiums, so you can stop paying out of pocket. It isn’t guaranteed. If the dividend scale drops, you may need to pay premiums for longer than illustrated, or resume them for a time.

Paying for it

Choose how long you pay.

You can spread your premiums over your lifetime or pay the policy off sooner. The shorter the payment period, the higher each premium, but the sooner you’re done. Your coverage lasts your whole life either way.

Illustration only. Example policy bought at age 35. Payment options vary by insurer. If dividends allow, premium offset can also end payments early.

Using your cash value

Three ways to use your cash value.

As cash value builds, you can use it without giving up your coverage. Each way works differently.

Three ways to use the cash value of a participating policy
FeaturePolicy loanCollateral loanWithdrawal
How it worksBorrow from the insurer, using your cash value as security. There’s usually no approval process.Borrow from a bank or other lender, with your policy as collateral.Take money out of the policy, usually by cashing in paid-up additions or dividends left on deposit.
What it means for your policyInterest is charged. Any loan still owing when you die is paid from the death benefit.Your policy stays as it is. The loan is repaid by you, or from the death benefit.Your cash value and death benefit go down, and future dividends may be lower.

  • Policy loan

    How it works:
    Borrow from the insurer, using your cash value as security. There’s usually no approval process.
    What it means for your policy:
    Interest is charged. Any loan still owing when you die is paid from the death benefit.

  • Collateral loan

    How it works:
    Borrow from a bank or other lender, with your policy as collateral.
    What it means for your policy:
    Your policy stays as it is. The loan is repaid by you, or from the death benefit.

  • Withdrawal

    How it works:
    Take money out of the policy, usually by cashing in paid-up additions or dividends left on deposit.
    What it means for your policy:
    Your cash value and death benefit go down, and future dividends may be lower.

Tax. Using your cash value may be taxable, depending on how much you take and your policy’s values. We’ll walk you through it before you decide.

Before you decide

What to weigh.

Participating life insurance suits some needs well and others poorly. These are the trade-offs to weigh.

  • Higher premiums

    Premiums are much higher than term insurance for the same coverage, because the policy lasts your whole life and builds cash value.

  • A slow start

    Cash value grows slowly in the early years. If you cancel early, you’ll usually get back less than you paid.

  • Dividends can change

    Dividends aren’t guaranteed. If the dividend scale drops, your policy grows more slowly than illustrated.

  • Less control

    The insurer manages the participating fund. You don’t choose the investments, as you would with universal life insurance.

Cost

What affects the price.

  • Age and sex

    Rates rise with age, and insurers price men and women differently.

  • Health and lifestyle

    Your health, family history and habits such as smoking.

  • Coverage amount

    The larger the death benefit, the higher the premium.

  • How long you pay

    A shorter payment period means higher premiums, for fewer years.

  • Dividend option

    Using dividends to reduce your premium lowers what you pay. Buying paid-up additions builds more value.

Is it right for you?

Who it suits.

May suit you if

  • You want coverage that lasts your whole life, with guaranteed values.
  • You’ve maximized your RRSP and TFSA and want more tax-advantaged growth.
  • You want to leave more to your family or a charity, or cover taxes on your estate.
  • You prefer steady, gradual growth to managing investments yourself.

Something else may fit better if

  • Your need is for a set period, such as until the mortgage is paid off.Term life insurance
  • You want to choose and manage the investments yourself.Universal life insurance
  • You can’t comfortably commit to the premiums for the long term.

For business owners

Many business owners hold participating policies in their corporation, for protection and planning. Business-owned life insurance

Frequently asked questions

All questions
What is participating life insurance?

It’s whole life insurance that shares in the results of the insurer’s participating fund. You get lifetime coverage with guaranteed values set in your contract, and you may also receive dividends when the fund’s results are better than expected. Dividends aren’t guaranteed, and how they’re calculated and paid varies by insurer and policy.

Open this answer on its own page

How are dividends from participating life insurance determined?

Dividends reflect how the insurer’s participating fund performs compared with what it assumed when it priced the policies. The biggest factor is investment returns, but claims, lapses, expenses and taxes also play a part. The insurer smooths results over many years, so dividends tend to change gradually. They aren’t guaranteed, and the details vary by insurer and policy.

Open this answer on its own page

Can I access the cash value in my participating life insurance policy?

Yes. As cash value builds, there are three ways to use it without giving up your coverage: a policy loan from the insurer, a loan from a bank or other lender with your policy as collateral, or a withdrawal, usually by cashing in paid-up additions or dividends left on deposit. Any loan still owing when you die is paid from the death benefit, and a withdrawal lowers your cash value and death benefit. Using your cash value may be taxable, so we’ll walk you through it before you decide.

Open this answer on its own page

What happens to my participating life insurance dividends if I don’t use them?

If dividends are paid, you usually choose how they’re used: buying paid-up additions, leaving them on deposit to earn interest, reducing your premium, or taking them in cash. The options available depend on the insurer and the policy. Once a dividend is credited to your policy, it’s yours, even if the dividend scale goes down later.

Open this answer on its own page

Is participating life insurance a good investment?

Participating life insurance is life insurance first. Some people use it as part of a long-term financial plan, because it builds cash value and may earn dividends. Whether it fits depends on your goals, your time horizon and the policy, and it’s best weighed against other options with advice.

Open this answer on its own page

Related to participating life insurance

A question about your coverage? Ask us.

No obligation. We’ll tell you plainly what we think, including when you already have what you need.

Book a call1-800-661-3300