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Advisors who follow a holistic approach to financial planning remind clients to consider both their wealth goals and insurance needs. So, when recommending life insurance, it’s important to consider each product’s full value proposition.

That’s certainly true with participating life insurance (par life), which has benefits such as potential dividends, a guaranteed insurance payout and portfolio diversification.

The par life insurance market has expanded recently, with many new products available to advisors to choose for their clients. While there are multiple factors to assess when choosing the right par life solution for a client, it’s not unusual for par life to be positioned based on illustrated values.

“That’s problematic for a policy that’s usually seen as a long-term investment,” says Mike Cunneen, senior vice-president of insurance and independent distribution at Canada Life.

Those illustrations include several assumptions, such as the dividend scale interest rate (DSIR), which is the investment component of the dividend. The DSIR is used in illustration software as a constant and projected at the same level over a long time horizon.

Mr. Cunneen says some advisors can tend to focus on the DSIR, which is an important metric but shouldn’t be the only deciding factor.

“The dividend scale, including the DSIR, is reviewed annually, so it only provides a picture for one year,” he says. “A one-year window over the lifetime of a possible 30- to 40-year policy may not provide the client with the full picture of what this product is going to look like.”

Furthermore, illustrated values don’t reveal all that’s needed to know about a product and the company that supports it. Looking at the historical performance, including the dividend payouts over time, will give a much more holistic valuation of the product, Mr. Cunneen says.

In fact, the historical average for DSIRs are similar across  the major Canadian insurers who disclose this information and who are active in the par life space, as all are operating in the same investment environment. So, what other factors should matter to advisors when choosing a par life product?

Why experience in this market matters

Experience makes a difference when providing long-lasting financial solutions to clients. Some insurers go in and out of the market. Advisors should ensure they’re tapping into a company that has the know-how and the solvency to pay claims and can provide growth over the lifetime of a policy.

“When recommending par life as part of your planning, you are starting a relationship with an insurer for a long period of time,” says Mr. Cunneen. “It’s important to choose one with a great history and the expertise at all levels.”

He adds that strong and stable par account management has been a long-term focus at Canada Life. The firm has been in the par life market consistently for more than 170 years, and has paid out dividends in each one, through different economic situations.

“We’ve never left participating life insurance,” Mr. Cunneen says. “Staying the course, unwavering through the ups and downs, has led to the size of our participating account.”

The current account for Canada Life’s par life products sits at more than $45-billion, with more than $1.2-billion in dividends paid out in 2020.

Par life is a complex product. So, it’s important to have experts who can help design solutions from the point of sale and throughout the life of the policy to meet clients’ changing needs.

“You want to be with a company that has high expertise and can provide flexibility, whether making policy changes on behalf of a client or executing on strategy,” Mr. Cunneen says. 

Look for the right balance of risk and reward

Another factor for advisors to consider is whether a par life provider has a comprehensive support team in place, which can include a wholesale team, product experts, accountants and lawyers. Such a team can counsel advisors around par life and provide customization where required.

“Those things are pivotal to offerings,” Mr. Cunneen says.

As financial markets are constantly changing, it’s vital for an insurance carrier to review its par life asset mix frequently to allow for the right balance of risk and reward. Look too for an account that is managed actively for best long-term returns.

For example, Canada Life’s current target mix for its par account is about 70 per cent fixed-income investments, with a specific focus on private fixed-income assets such as commercial mortgages, and 30 per cent non-fixed income.

Companies with a strong surplus also have the ability to weather small fluctuations in the market.

Some of the plans put in place with par life insurance solutions involve considerable financial commitments from clients. Companies involved in par life should be able to commit to providing thorough disclosures of financial results for clients on an annual basis. That adds to confidence in these products and in a company's ability to pay death benefits.

At Canada Life, the service standard is to pay out 90 per cent of all life insurance claims within eight business days of receiving all requirements.

“We want people to make an educated decision when it comes to selecting par life,” Mr. Cunneen says. “Dealing with a company that has a positive track record of returns and localized supports, and a history of transparency, will help the consumer make that choice.”