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Premium offset

What is premium offset?

You agree to make basic premium payments for a specified amount of time (see your contract) when you buy your participating life insurance policy. One advantage of participating life insurance is that you can use dividends (if any) to pay all or part of your premium payments.

This is called premium offset. It can also be known as Premium Vacation™ and the abbreviated premium payment option (APPO). 

How does premium offset work?

First, you receive a dividend. This is not guaranteed.     Next, your dividend is applied toward your next policy premium payment. If you have the enhanced coverage dividend option, your dividend goes toward paying for the one-year term life insurance first, before it is applied to your next policy premium payment.    If it isn’t large enough, we’ll use accumulated paid-up additional coverage. If your accumulated paid-up additional coverage doesn’t cover the cost of your premium payment, you must pay out of pocket.     Next, any remaining dividend purchases paid-up additional coverage and is added to accumulated coverage, which can be used to pay your next policy premium payment if your dividend isn’t enough.

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When can you start premium offset?

Your current illustrated dividends, and previously accumulated paid-up additional coverage, must be enough to cover the cost of your premium payments for all future years. We use the dividend scale in effect at that time to calculate future illustrated dividends. Dividends aren’t guaranteed.

If you have the enhanced coverage dividend option, also known as enhancement dividend option, Econolife dividend option, enhanced coverage option (ECO) and Economatic dividend option, your dividend must also cover the cost of one-year term life insurance for the current and future years, using the current dividend scale.

There may be other rules that affect premium offset start dates. For example, some policies may require that one-year term coverage is gone by age 90 when this coverage becomes very expensive.

What is the dividend scale?

The dividend scale reflects earnings from the participating account. Investment performance, insurance claims (payouts), expenses and taxes, policy terminations, policyowner withdrawals and policyowner loans are key factors which determine earnings.

When earnings exceed what we need to meet guarantees and commitments, policyowners may share (or participate) in these earnings. We may distribute some of these earnings as policyowner dividends, although this isn’t guaranteed. We review the dividend scale at least once a year.

Why does the dividend scale affect premium offset?

Dividends directly affect premium offset. If the dividend scale goes down, your dividends (if any) may not be enough to cover your premium, which means you must pay your premium out-of-pocket. If your dividends go up, you could start premium offset earlier or stay on premium offset longer. 

Can I see an example of premium offset with some possible scenarios?

Download this PDF to see two scenarios: One where premium offset is supported, and another where it is not.

Learn more about premium offset

We’ve got in-depth explanations for some of the most frequently asked questions

“I was on premium offset but received a letter saying I have to pay premiums out of pocket again”

Understand what this means for you – and what your next steps are if this happens.

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The most common question about premium offset

Why are start dates different between policies? Is premium offset included in my policy? Get those answers and more. 

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Still have questions about premium offset?

 Talk to your advisor or our Client Services team would love to help.

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