Bill’s Blog | June 2, 2022
Whole life participating insurance has many incredible benefits, and I will share several of them with you. Also, I share those who might be the best fit for this product. But before I get there, I will remind you of the importance of life insurance.
Life insurance should be one of the foundation pillars for most people’s financial planning. Why?
- The majority of Canadians carry sizable debt, both individuals and businesses. If one of the income earners/owners had an unexpected death, this, in many cases, will leave the surviving partner/family in a financial crisis. Life insurance will quickly resolve the debt and relieve the burden, providing an adequate amount is put in place.
- It still amazes me that about 45% of Canadians have no life insurance, and 15 to 20% are significantly underinsured.
- I have always believed it is essential to protect our loved ones and business partners and honour our obligations. But unfortunately, some people believe it is ok to leave financial burdens to other family members or society. I have never believed this, and I feel taking personal responsibility is the proper road to take.
- Life insurance is very affordable in almost all cases unless we wait too long or become physically or mentally ill. Age, health, and lifestyle choices are the major factors in premium cost. Best to purchase when you are young and healthy! I include children as you can guarantee insurability which can be a tremendous gift, and I will discuss this more when I get to whole life insurance.
- Life insurance not only protects family and offsets debt, but you can leave a legacy to grandchildren or organizations or charitable causes.
- There are many options for doing life insurance so that I can customize the best solution and keep it within your budget and objectives. There are multiple term options, family-oriented solutions, multiple permanent products, combo life/ci/di products, simplified underwriting, and one of my favourites is using a hybrid solution.
- In summary, if you do not have life insurance or adequate coverage, please reach out to me, and I can discuss options and help you find the best solution to your needs. Many people have good group insurance through work; however, it is usually insufficient to cover proper protection. I recommend always having personal, fully underwritten insurance, so you will always have coverage if you quit or lose your job. I can also discuss why I’m not too fond of mortgage insurance in most cases.
So, let’s talk whole life participating insurance. What is it? Whole life means coverage until age 100 or beyond. You purchase once, lockin the premiums, and have life coverage.
What is participating? Life insurance companies that offer this product invest the collective premiums of all the clients (minus the payout/reserve requirements) and create annual returns. You, the insured, get to participate in those returns annually in the way of a dividend. So, WL Par provides permanent life insurance coverage and cash values that build over the contract’s life.
The preferred carriers I use as a broker pay out a 6% dividend annually (approximate and can change both up or down based on interest rates), which goes into a separate cash account. Over time, this cash value can become significant and provides a compelling investment strategy. In addition, the money grows tax-free in your account and can be borrowed against down the road and create a tax-free income. Please reach out to me if you want to understand the strategy entirely.
Another fantastic feature is that WL Par can be structured, so part of the annual premium goes to purchasing more life insurance every year, and the remainder goes into the cash account. So, for example, a healthy 32-year-old woman and non-smoker purchases a 50K of WL Par, and let us see what happens at age 70 with the insurance coverage and cash value. The women choose a twenty-year pay option (you can also do life pay or a ten-year pay option). The monthly premium is $115.02. The life coverage at age 70 is now $150,236, and the cash value has grown to $86,435. This illustration is not guaranteed but provides an idea of affordable cost and the forecast potential outcomes.
If you were to purchase a large WL Par contract, it would be costly, and only a few people could afford it. So, what is the solution? The hybrid strategy. You can purchase 25K, 50K, 75K or whatever you feel is affordable in WL Par and do the remainder of the insurance needed in term insurance. You can choose a 10, 20, 30 or age 65 term rider. This strategy can create a permanent and affordable solution when you need maximum insurance coverage with a family or growing business. The term expires at your desired time (premium goes down), and you still have the permanent solution that continues to grow as long as you maintain the premium or choose a 10 or 20 payment option.
So, who would be an ideal client for WL Par insurance?
- Business owners: diversify a portion of their wealth and protect their retailed earnings. Remember, this investment has no tax consequences unless you cash out the money (not recommended). WL Par provides an exceptional retirement income strategy.
- Young professional or tradespeople: You like the option of creating a twofold solution of both life insurance coverage and a retirement or savings strategy. Affordable and simple. You never have to worry about investment options, and the insurer does all the investment work for you.
- Children: Sadly, way too often, we hear of children receiving severe health issues (cancer, juvenile diabetes, or some other life-threatening disorder). If this is the case, the child can be uninsurable for the rest of their lives. To solve this issue, I have set up for many parents WL Par insurance for their children (small amount of coverage, 25 to 50K or whatever the preferred amount). The child is covered for life and has a growing cash account that can be used down the road when needed (down-payment, education or a retirement solution by borrowing against the cash account). Premiums are affordable for most working parents.
In conclusion, life insurance or WL Par should be a part of your financial planning. The final benefit I will mention is the beneficiary designation. The money goes to where you choose quickly tax-free (usually, in a month or so) and stays outside the estate, which is extremely important (saving taxes, fees and probate that can take six months or longer to complete). If you need help deciding on the best life insurance solution for your life, business or family, feel free to contact me at firstname.lastname@example.org or 778-539-7107. I am a life insurance broker in British Columbia and can help anyone in the province.
Bill Westmacott, Owner