Additional Deposit is an option that can help grow your policy faster and more efficiently. It allows you to purchase additional paid-up insurance over and above the Paid-Up Additions purchased by policy dividends. This process is also often referred to as “over-funding” a policy, or as a “boost”.
For this option to be available, your dividend option MUST be either Paid-Up Additions or Enhanced Coverage. The Additional Deposits are usually paid with the same frequency as the premiums (monthly or annually), and come above and beyond your base premium.
They can be paid on a one-time basis (subject to availability and policy limits), for as long as you’re paying premiums, or even after you’re done paying premiums depending on the insurance company you’re working with. To enable all of the features discussed in this book, your policy should be set up initially taking full advantage of all the additional deposit room available.
Most companies allow flexibility with the Additional Deposit option, and provide the opportunity to suspend the payment (also referred to as payment holiday). But in that second case, you have to make at least one payment over every 24 month period, to ensure you don’t lose this option altogether. You could re-apply for it later, but it would most likely require a medical exam to re-establish the Additional Deposits.
You can also make a partial payment, knowing that if you decrease the amount paid in as an additional deposit, it might affect the amount you will be able to pay in the future (again, this varies depending on which insurance company you work with). You can increase it back up to the original amount within a year. With certain insurance companies, the ongoing additional deposit yearly maximum is governed by a review of the last three policy years (three policy year payments only cover a two year calendar span, with your first payment on day one, the second one year later, and the third one at the end of the second year). If the highest amount paid during the preceding three policy years is a partial payment, that amount becomes the new maximum deposit amount moving forward without requiring medical underwriting. If you wanted to increase it back to its original amount, or to re-establish it after the policy had lapsed, you most likely would have to go through a new medical underwriting process, which means that you could possibly be refused if your health had changed by that time.
Regardless, this is a client-oriented environment. Once you are approved, the Additional Deposit option is one that you control one hundred percent within the set guidelines of the company and Revenue Canada (as determined by an Exempt Test which determines the level at which your policy can grow to, without becoming a taxable investment).
Note: As mentioned above, Additional Deposits can be made either monthly or annually. When choosing monthly deposits, be aware that you will be paying an additional “monthly modal factor” (or monthly load fee) which will reduce the amount of your additional deposit actually making it into your policy. This can be a personal preference because monthly payments are easier to make and maintain (as they are smaller), whereas an annual payment will avoid the monthly modal factor, but will require a much larger sum once a year.