Participating life insurance policies have the potential for earning policyholder dividends. When you purchase participating life insurance, the premiums paid go into an account called the participating account, along with funds from other Canada Life participating policies.
Premiums and other basic values for these policies are calculated using long-term assumptions for mortality, investment returns, expenses (including taxes) and other relevant factors. The guaranteed premiums, guaranteed cash surrender value and guaranteed death benefit are based on these assumptions and are in place for the life of the policy.
If the overall experience in the participating account is more favourable than the long-term assumptions that support the guaranteed values (including investment returns, mortality and expense experience), a surplus is generated. A portion of the surplus may be paid to policyholders in the form of dividends.
The amount available for distribution in any year will vary upwards or downwards depending on the actual and expected experience. The amount
available is also influenced by considerations such as:
- The need to retain earnings as surplus to, among other things:
- Ensure financial strength and stability Finance new business growth Provide for transitions during periods of major change Smooth fluctuations in experience
- Practical considerations and limits Legal requirements and prevailing industry practices
The Insurance Companies Act (ICA) of Canada contains a number of provisions that govern how the participating account is to be managed within a company with shareholders.
Participating Account Management Style
The participating account is broadly diversified and generally managed as a fixed-income account.
The long-term investment strategy has contributed to stable investment returns. During times of economic change, the Canada Life dividend scale interest rate has been relatively stable compared with many financial instruments.
Regular reporting of participating account assets demonstrates the stability and strength of the participating account.