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?

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.