CLHIA-ACCAP - Consumer Information

A guide to life insurance

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4 LIFE INSURANCE POLICIES Permanent life insurance has several variations: whole life, universal life, variable life. All are designed to provide insurance protection for your entire lifetime, as long as you keep the policy in force. Basic features of permanent policies Level premiums: Most permanent policies have premiums that remain level over the lifetime of the policy, even though the risk of death increases with age. To achieve this, the premiums charged in the initial years are higher than the risk you represent then and are invested to form policy reserves that subsidize the premiums paid in later years when you are older and the risk is higher. Cash values: These reserves accumulate as a cash value, or cash surrender value. The cash value is available to you if you want to borrow against your policy or to cancel (surrender) it. (Usually, the cash value is not added to the face amount of the policy, which is paid out on your death.) Non-forfeiture options: These are choices available to a policyholder if he or she discontinues premium payments on a policy. They allow the policyholder to keep the policy in force or to take a cash settlement. (For more, see page 14.) Participating policies and policy "dividends": A participating policy shares in the financial experience of the insurance company, and policy "dividends" are declared annually and paid to policyholders. Premiums are based on conservative estimates of future expenses, death claims and interest or other investment earnings. When experience is more favourable than these estimates, a surplus is created, which allows the company to credit participating policyholders with dividends. Because dividends are based on future experience, such as costs and earnings, they are not guaranteed. Dividends can be paid in cash, left in the policy to accumulate, used to pay part of the premiums, or used to purchase additional insurance. (See page 15.) Non-participating policies: A non-participating policy does not share in the insurer's earnings and does not receive any dividends. Permanent Life Insurance

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