# Participating acct



## Sonny1966 (Sep 16, 2012)

Participating policy dividend acct by Cdn Life. Is this life insurance or a dividend portfolio? Beating the TSX index every year & no less than 5.5% returns? Too good to be true? Can someone help me out?


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## OnlyMyOpinion (Sep 1, 2013)

Is this a policy you hold, or something you are reading about?

It sounds like a universal (whole) life insurance policy you are describing. If so, don't put a lot of weight into so-called dividends. It remains more expensive than term life in providing LI coverage.

So yes, I'd say a participating dividend policy can be very misleading, illustrative possibilities that rarely match reality, increased face values, paid-up premiums, etc.


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## milhouse (Nov 16, 2016)

Not an expert so don't take my comments as gospel. I was looking into a participating whole life insurance product years ago. 

I'm assuming this is a participating whole life insurance product. It's a combo life insurance and investment product. Some of your premiums go towards the life insurance part of the product. The other parts go towards participating in the business of the the life insurance as an investment and getting paid dividends. It's not without risk. The business returns are dependent on stuff like people living longer so they don't have to pay death benefits early, getting a good return on the investment of premiums (interest rate impacts, etc), people buying the products, etc. 
I haven't done enough research to know specifically if it's better to buy term life insurance and invest the difference or buy a participating whole life product. I think general rule of thumb is term and invest is better. 
However, I think the first question is whether whole life is a good fit or not. Generally, it's situation specific like you're at risk of not being able to buy term in the future, you've maxed out your tax advantaged accounts and are now looking for a tax efficient strategy for your estate planning, etc. 
Then you can determine if a participating or non-participating product is better fit.


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## OptsyEagle (Nov 29, 2009)

That is not a dividend portfolio nor is it universal life. It is a "participating" whole life policy. Basically they overcharge you for your life insurance and when things like people dying, investment results and expenses are better then their worst case scenerio they allocate the savings they obtain from that, to your policy and call it a dividend. It is just a name. Different people do different things with the dividend but in any case you need to be weary of the account statements. It may appear as if the cash value is growing like gangbusters, but again, it is just allocating your overcharge back to you and investing that money the same way you could, but with a very large and very hidden fee taken out by the insurance company. Think of it this way. If you invested $10,000 and next year you invested another $1,000 and the account was now worth $11,500. You know that you only earned $500 on about $11,000 of invested capital but what you are seeing with a whole life insurance policy is a growth of $1,500 on $10,000 and thinking that is coming from something the insurance company is doing. It is not. They are just moving shells around on a table and eventually most of us lose track of where the pea is.

Another reason why it may look like it is outperforming, is that you will receive either the death benefit OR the cash value. You do not get both. Sometimes the dividends are used to buy more life insurance but the issue still remains that if the policy is kept for life and the death benefit is paid, then the cash value you are looking at on your statements is not worth the paper it is printed on because you do not get that.

Basically the insurance company is saving part of your premiums to pay out the eventual death claim, but they are offering you a choice. You can leave it and they will pay the death benefit when you die OR you can let them off the hook, and they will give you that reserve they have been holding back to pay that death benefit that now they do not need to pay. That is what the cash value is.

It is very confusing and completely non transparent, hence if one wants permanent insurance it is much more recommended to buy universal life insurance if for any more reason then because it is more transparent. If set up properly a UL policy would pay out the cash value on top of the death benefit. That does not make it necessarily financially better, because as you know, anything you get back is always from what you paid into it, minus some nasty fees the insurance company is taking along the way.

My best advice. If you have a risk of dying then buy life insurance. If it is a permanent risk that will be with you for you whole life (rarely the case) then buy UL life insurance. If your biggest problem is that you are not rich enough, then one thing you never want to buy is life insurance. If you have a combination of both risks then buy dirt cheap term life insurance and invest any extra money you have outside of insurance, optimally in a TFSA or RRSP.

I hope that helps.


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## ian (Jun 18, 2016)

I take the approach that if a proposal is not simple enough for me to clearly understand it I am not interested. Likewise I want to shop for products independently. Not interested in an RSP linked with term life, etc. or anything else like that. I would rather buy the investment separate from the the insurance. And we have never purchased anything except term.

We used to have a saying in my previous business life. Where there is mystery, there is margin. Very much applies to products like the one your referenced.


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## Sonny1966 (Sep 16, 2012)

Thx for thoughtful answers! This forum is the best!


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