Participating Life Insurance: Pros and Cons

Are you considering getting participating life insurance and you want to know more about it? In this article, we lay out exactly what participating insurance is, what it offers you, and the participating life insurance pros and cons. So, read on if you want to find out more!

What is participating life insurance?

Imagine if you could get some money back from your life insurance policy while you were still living. Well, you can do this when you take out participating life insurance!

Participating life insurance is a different form of whole life insurance that offers its holders the opportunity to get dividend payments annually.

These dividend payments are not guaranteed. However, when they do pay out, these payments can be used to reduce premiums, purchase more cover, or simply be received as cash.

Whichever way you choose to use it, your participating life insurance will allow you to put your profits to work while you are still alive!

So, we’re going to take a closer look at the pros and cons of participating life insurance policies.

A unique form of life insurance

Since it’s a form of whole life insurance, participating life insurance gives you the same amount of coverage throughout your whole life, not taking into account any changes to your health, as long as your premiums get paid fully and on time. Then, your premium amount over the policy cost gets invested into an account.

Participating life insurance is a lot like a managed mutual fund account since both can accrue interest.

Then, at the end of the year, the policy gets examined. Factors like death benefits, expenses, taxes and account performance are all examined, for each person participating in the policy. This helps to determine the policy’s dividend payout.

So, participating in life insurance is basically like a co-op for insurance. You and anyone else who wants to participate pay into the policy together, and share out the profits too, if all goes well.

This all sounds good, doesn’t it? But there’s more to participating in life insurance than this. So, read on!

Participating life insurance can be expensive

Your insurance company, just like any other company, is trying to make a profit, of course. This is not a secret. So, there’s no way your insurance company is going to allow you to make extra money without them finding a way to cover their own overheads too.

You will be locked into the rate of premium as soon as you sign up for your coverage. So, since your rates will stay the same throughout your life, your insurance provider will want to ensure they don’t lose their money when covering you.

Of course, every insurance policy is individual. But, a whole life insurance policy like this one can easily cost you up to ten times more than a term life policy! So, it’s a good idea to compare quotes for life insurance before you commit to a plan, to make sure you get the best value.

Are returns guaranteed?

No. With a participating whole life policy, the rate of return will fluctuate in accordance with the various markets. So, if the world market performs well your policy probably will too. But what we’re saying is, a participating whole life policy is just as volatile and up-and-down as any mutual fund or stock would be.

On top of this, the amount available to payout as a dividend is based on the total number of policy payouts in that year. So, you may sometimes not get to share in any dividends whatsoever.

Is participating in whole life insurance right for me?

A participating whole life insurance policy is typically far more expensive than a term life one, and so, is generally best suited to people who are either estate planning, middle-aged or older. However, anyone who is in a financial position to pay for an insurance policy costing around ten times that of a term life insurance policy could be the right person for a participating whole life insurance policy.

Most young people, though, do not have the financial ability to pay whole life insurance policy premiums. But, there are some similar alternatives for people in this boat.

Investing your money into a long-term savings plan like an RRSP is one such option. If you find that you are confident about maintaining your net income, and can maximise your RRSP contributions year upon year, a participating whole life plan could then be perfect for you!

Then there’s the Personal Health Spending Account or PHSP. You’re probably well aware that most benefits programs for employees in Canada have certain restrictions and limits on their usage. And, if you don’t have access to a plan like this, of course, you must pay for health care using your own money.

This is where the PHSP comes in. The Personal Health Spending Plan is a government benefit that offers a great health care strategy for owners of incorporated businesses or the self-employed. If you claim expenses on your income tax, you may not be able to take full advantage of this service. But if you are thinking about participating life insurance for this reason, the PHSP can be a great alternative. Check out to find out more.

What’s good about participating in whole life insurance?

In short, the main advantages of participating insurance are that it allows you to receive dividends, which you can also use to offset the cost of your premiums or even re-invest, as well as the policy also having a fixed rate regardless of whether your health or needs change. When it comes to participating in life insurance pros and cons, this is definitely one of the major pros.

What’s bad about participating in whole life insurance?

But among the participating whole life insurance pros and cons is also the fact that a participating life insurance policy also comes at a much steeper price when compared with term life insurance, and even other standard whole life insurance policies. As well as this, participating whole life insurance does not guarantee a dividend payout.