As the name suggests, permanent life insurance can protect you and your family throughout your lifetime. It provides a death benefit and usually builds a cash value. The cash value accumulates in the policy on a tax-advantaged basis. If you need to, you can withdraw cash or borrow against its value. Withdrawals may be subject to tax. Be sure to review the product guide provided by the life insurance company. It should clearly show:
• How the life insurance works
• How cash value can accumulate in the policy
• The company’s track record for providing value to policyowners
Universal life insurance
Universal life insurance combines permanent life insurance with a tax-advantaged investment component. You can select an investment mix that’s as individual as you are, taking into account the amount of investment risk you’re comfortable with and your financial goals and circumstances. As your cash value accumulates, you can use it to pay the cost of insurance or, depending on the option you select, to increase the total death benefit. This type of life insurance is particularly suited to people who want to actively manage the investment component of their life insurance policy.
Participating life insurance
Participating life insurance gives you a foundation of guaranteed values and tax-advantaged growth, plus the opportunity to receive policyowner dividends. Participating policyowners’ premiums go into a special account called the participating account. The life insurance company manages this account, investing in a diversified portfolio of bonds, mortgages, equities and real estate. This frees you from the details of hands-on management. Earnings come from favourable investment returns, mortality experience and expense management. The life insurance company may then distribute some of these earnings to you in the form of policyowner dividends. You can decide how you want to use your dividends. Some popular options are:
• Use your dividends to buy more permanent life insurance. This can help offset inflation and provide higher long-term growth in your cash value and death benefit.
• Use your dividends to buy a combination of term and permanent life insurance. This can help you buy more coverage today at an affordable price.