Whole Life: A Whole New Investment Class

The recent developments in investment markets and the volatile performance that has resulted have brought about a new appeal to an old workhorse. For investors looking for a diversification in their investment portfolio and a more tax efficient fixed income investment alternative, a compelling argument can be made for the use of Whole Life Insurance.

What is Whole Life Insurance?

  • It is permanent life insurance protection – meaning it won’t expire before you do!
  • It has level guaranteed premiums for the life of the policy.
  • It has tax advantaged cash value growth.
  • It can pay annual dividends (participating whole life).
  • Dividends can be taken in a number of different ways but the option most often selected to provide the maximum tax advantaged growth is “paid-up additions”.
  • Paid-up additions are blocks of single premium life insurance which also pay an annual dividend.
  • The assets of the participating pool are professionally managed and largely in fixed income investments. Management fees are extremely low (one company charges 0.072% management fee) and the funds have very little volatility.
  • This combination of guaranteed cash value and the non-guaranteed portion from the dividend account grows tax-deferred and, if paid to the beneficiary as a consequence of death, tax-free.


Can I access the cash value of the policy?

  • During the lifetime of the insured, the cash values can be accessed by way of partial or total surrender or policy loan.
  • Income tax may be payable on withdrawals.
  • One alternative to avoid paying income tax is to use the policy as collateral and borrow from a third party lender.
  • If structured properly, the interest on this loan may be tax deductible.

Why is it considered a good investment?

  • The tax advantaged steady growth combined with the significant estate benefits are the primary reasons why Participating Whole Life is now being thought of as a new investment class.
  • Unlike other accumulation policies (such as Universal Life), mutual funds and other equity investments, the cash and dividend value of a Whole Life policy cannot decrease as long as premium payments are made.

Favourably compares to a long term, high yield bond

  • Today most portfolio managers recommend that a prudent investor have a diversified portfolio with a significant portion in fixed income investments, such as bonds, term deposits, etc.
  • Many investment managers suggest one third to 40% of an investment portfolio be in these types of investments for balanced growth and reduced overall volatility.

Including participating whole life in that portion of the portfolio can produce some significant results.

Participating Whole Life versus Fixed Income Investment paying 3.4% taxable interest rate*

Male, Non-smoker, age 50
Investment Option 3.5% fixed income Whole Life Option $1,5MM policy Required interest rate to match this value
Annual deposit for 20 years $50,435 $50,435
Liquid Value after 20 years $1,250,000 $1,443,512 5.86%
Death Benefit after 20 years $1,250,000 $3,390,000 18.69%
Value at age 75 $1,380,000 $1,912,731 7.18%
Estate Value on Death at age 85 $1,682,000 $5,313,382 11.5%

*The alternate investment values are shown after tax. Since there are strategies to avoid paying tax when accessing the cash value of the Whole Life policy, those values are shown pre-tax. There is no income tax payable on the death benefit.
Who should consider Whole Life Insurance as an investment?

  • Anyone looking for stable returns on their investment portfolio
  • For those that have corporations and are accumulating surplus, the use of Whole Life in the corporation not only provides the same stable, tax deferred returns but also provides opportunities for Capital Dividend Account planning.

With results like these it is no wonder that Whole Life is now being looked upon as a new investment class. Whether investing as an individual or via a corporation, the significant results that can be achieved by using Participating Whole Life are worth investigating.
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©iStockphoto.com/ Igor Dimovski