Having life insurance coverage is a very important decision for you and your beneficiaries. But there are many life insurance products to choose from. Which is right for you?
Which is the best fit for your personal situation, budget and longer-term financial, retirement and estate goals? It could be Participating Whole Life insurance (also known as Par Whole Life) if this profile looks like you:
My tolerance for investment risk is low
I want protection for my lifetime with guaranteed premiums, guaranteed cash values and a guaranteed basic death benefit that will be tax-free to my beneficiaries.
I want an investment component included with my insurance coverage that provides the potential for tax-deferred growth, a level premium and for the policy to become paid up over a number of years.
I don’t want the burden of the day-to-day management of the investment component of my life insurance policy.
I want built-in tax-advantaged savings I can easily and quickly draw on if I need the funds for personal or business reasons (although I do recognize that any cash values I withdraw from the policy may be subject to tax).
Participating life insurance combines life insurance with an investment component that also pays dividends. Here’s how participating whole life (Par) works:
Your premiums go into an account, called the PAR account, along with the premiums paid by everyone else holding a participating policy with the life insurance company you choose.
The premiums you pay and the policy coverages are calculated based on long-term assumptions for death claims, investment returns and other factors.
Your premiums, the guaranteed cash surrender value schedule and the basic death benefit are based on these factors and are guaranteed for the life of your policy. Paid up additions, determined by the dividends you have paid, are eligible to earn future dividends – that’s what provides for the compounding of a Whole Life policy – a great feature, and it’s tax sheltered.
The pooled premiums within the PAR account of all policyholders who own PAR policies are invested in a balanced portfolio managed by investment professionals.
When a profit is earned on a participating policy, a significant portion is distributed to the policyholders in the form of a dividend that is credited to your policy and owned by you. Although dividends are not guaranteed, participating policies have historically earned profits and returned dividends.
You can use the dividends to increase the policy’s cash value on a tax-advantaged basis, withdraw the cash from your policy or borrow against it, buy additional insurance without the need to prove your insurability, or to lower your out-of-pocket premiums.
Participating insurance products offer choice and flexibility. Talk to your professional advisor to find out if your personal and financial profile is up to PAR.
Andy Erickson is the division director with Investors Group, Vernon. This article is provided for information purposes only. Please consult with a professional advisor before implementing a strategy.
