Participating life insurance is permanent life insurance which includes basic coverage whose premium, cash surrender value and death benefit are fully guaranteed. Its main benefit is allowing you to receive dividends each year which can be used to acquire paid up insurance, which in turn increases death benefit and cash surrender value of the insurance policy.
The death benefit, cash surrender value and premiums for the basic coverage are fully guaranteed. You may opt to pay insurance premium over a period of 10 years, 20 years or until age 100. You may also receive dividends each year, which can be paid according to your choice among the four dividend options available, (1) Paid up additions (PUA), (2) Annual premium reduction, (3) Payable in cash or (4) Deposit with interest.
A parent or grandparent who wants to offer a strong financial base for your children and grandchildren and guarantee their future insurability while they are young and are in good health. This insurance provides coverage with potential for growth over a long term as well as the possibility of paying the premium early or having premiums paid from the dividend that policy earns.
A professional with excess liquidity and strong income base. You could maximize your long-term value of the estate to reduce estate’s tax expense and have access to liquidity from cash value to use for projects or enjoy that extra income in retirement age.
A business owner wanting a permanent insurance solution with flexibility to access liquidity. Or wanting a robust form of financial protection in the event of loss of a key employee or business associate to ensure your firm’s succession. You could also benefit from privileged access to asset classes normally reserved for the institutional market.
Based on your objectives, you could benefit from your dividends in 4 ways. You can change the option how you want to use dividends anytime based on your changing needs.
Option 1: Paid-up additions (PUA)
With this option, you could use dividends to purchase paid-up insurance which in turn favours growth of your estate. This option maximizes the coverage amount and increases total cash surrender value.
Option 2: Annual premium reduction
This option lets you use the proceeds from dividends to reduce your annual premium without affecting your coverage amount in the event of death.
Option 3: Payable in cash
You also have the option to receive your annual dividend payments in cash. Hence, you benefit from this additional source of liquidity, while maintaining your insurance coverage amount in the event of death. However, withdrawing dividends in cash could have tax implications.
Option 4: Deposit with interest
Under this option you could receive your annual dividends in a savings account managed by Insurance Company. This savings account generates interest income that is taxed at the end of the year. Therefore, this option could also have tax implications.
A participating insurance policy also has provision for additional deposit as an accelerator to maximize death benefit and cash value of the policy. This option allows you to make additional deposits which are used to obtain paid-up additions.
Another beauty of a participating life insurance policy is, it gives you access to a source of liquidity thanks to dividends or cash surrender value. You may take out cash surrender value though disability benefit, partial withdrawals, policy loans or loans with financial institutions as per provisions of the policy.
Dividends could be paid to you annually, on the policy anniversary. The amount of dividend is calculated based on returns in the various asset classes of the participating insurance account and other factors such as mortality, lapse ratio of the policies and operating costs of the company. Dividends may vary annually and may not be guaranteed though.