Originally Posted by Nufy
Thoughts on participating life insurance.
It's being offered as another option in my investment plan.
What are your thoughts Slava ?
Par policies (participating life) are useful in the right situation. So generally a participating life policy basically is one that is "over-funded" and the overage is invested. That investment for a par policy is a fund that allows the policyholder to participate with the insurer. It's generally a stable fund that consists of interest bearing investments, maybe some real estate and things like that. In Canada there are some par policies that remain, but there are also some companies that run policies that are somewhat close to participating policies, but really and truly aren't. Instead they pay a dividend rate and sort of approximate a true par policy.
So it's hard for me to say whether its useful in your particular situation. Sometimes these policies are used in place of a fixed-income or conservative holding in an investment portfolio where they provide the added benefit of the life insurance. That is beneficial because the policy is in place for estate purposes, and also because the investment there transfers tax free (and grows tax sheltered as well). That is useful for people who have exhausted things like RRSPs and TFSAs specifically due to the tax shelter and estate transfer to the next generation (which not knowing your age exactly, but taking a guess having met you, is probably not a major concern quite yet!)
There are some drawbacks to these plans, or can be depending on your use of them. Most notably you can really only access the money there by borrowing against the policy or by surrendering the coverage. If you surrender the policy there can be tax implications and you will want to be aware of that, in that scenario. Borrowing against the cash value is possible, and not a taxable event, however you're going to pay interest in that case. This is different from other policies (such as a Universal Life) where you can make a straight withdrawal of your cash.
And I should mention that if the point here is just straight insurance for family protection or things of that nature (where the insurance is the goal and not the investment) there are going to be cheaper options than a participating plan.
So, I hope that this is useful, but by all means if you want a little more in depth information just let me know.