There are two types of life insurance; term and permanent. Term insurance is temporary and for a short “term.” Permanent insurance is lifetime coverage and can provide for a long-term need, estate and tax issues, legacy issues and can be used as an asset class. All policies are issued with preferred underwriting and preferred rates where applicable.
- Term life insurance – temporary insurance.
Term insurance is temporary in nature and is often referred to as rented insurance. Rates increase every ten or twenty years (the “term”), eventually becoming prohibitively expensive and policies expire.
- Permanent insurance – lifetime coverage.
There are two types of permanent insurance; universal life and whole life.
- Universal life insurance. A universal life insurance policy has a guaranteed death benefit. Similar to a mortgage on your home, you can pay the policy off over a period of time or you can pay the premium for life. Traditionally this type of policy is for a pure insurance need.
- Whole life insurance. A participating whole life insurance policy is an asset accumulation, estate, and retirement planning vehicle. It is designed to enhance the cash value in a long-term dividend interest rate earning asset class while providing guaranteed cash value and permanent life insurance. This policy is currently classified by the Canada Revenue Agency (CRA) as a tax-exempt life insurance policy for taxation purposes and we assume that the current Income Tax rules regarding life insurance will remain the same. In Canada, the opportunity to earn policyholder dividends is unique to participating policies where the policyholders share in the experience of the pool of life insurance policies through the payment of policyholder dividends. Often clients will use a participating whole life policy as an asset class due to the preferred tax treatment.There are five reasons clients use participating whole life as an asset class.
- Tax free growth. Similar to an RSP, money inside a whole life policy is deemed by Revenue Canada to be tax-exempt and therefore grows tax free.
- Performance. Dividends are guaranteed to be paid and the increased annual cash values and death benefits are guaranteed. The current dividend interest rate is 6.25%
- Asset allocation. Sun life is the third largest debt provider in North American investing in Hospitals, Bridges and Roads making its asset allocation conservative with a history of robust performance in a participating insurance policy which means by law, the insurer must return 97.5% of the profit of the insurance portfolio to its policy holders (you).
- Diversification. Perhaps most important is the fact that the traditional investment portfolio of stocks and bonds is no longer working and whole life is an alternative asset class.
- Guarantees. As funds are paid into your whole life plan, values are vested and cannot go down in value. Whole life is the only asset class where funds are guaranteed to grow year after year.
As an OSA member, you are entitled to preferred underwriting on term, universal and whole life insurance through the OSA Insurance program.
OSA INSURANCE PROGRAM