How does whole life compare as an investment since 2001? A personal case story provides a surprising answer.

On November 21, 2001 Manulife Financial issued a $1.2 million participating whole life policy on a 22-year-old male. Most times, whole life policies are discussed in terms of projections. This is a review of actual performance over the last 12 years to the end of 2013. The policy was projected after five years to have a total cash value of $101,860 and a total death benefit of $2,629,613. After 10 years the policy was projected to have a total cash value of $350,329 and a total death benefit of $4,067,426. Over the last 12 years the policy dividends were reduced seven times. The premiums have faithfully been paid every year in the amount of $32,521 which includes an additional deposit option of $13,524 using a paid-up additions dividend option. This policy requires only $18,997 as a base premium to sustain the policy but the client has chosen to overfund the policy by $13,524 each year to increase the investment component of the policy. The original projection was based upon 10 annual payments after which time the policy should be able to sustain itself. In reality, this client chose not to suspend premium payments and continue paying annually to this day. It should also be noted that in 2004 for some unknown reason the additional deposit was not made as per usual but otherwise to date, no withdrawals or policy loans have been made from the policy which was just allowed to accumulate cash values and grow its death benefit.


Today, twelve years later, this policy has a cash value of $440,545 and a death benefit of $4,296,634. When looking at the original 10 year projection when the policy was issued, it appears as though the numbers are holding up fairly nicely despite seven dividend scale decreases over the twelve year period. When comparing the policy statements at year five and year ten, the numbers still hold up pretty well. After 5 years, the policy had a cash value of $83,792 (vs. a Projected $101,860) and a death benefit of $2,376,050 (vs. a Projected $2,629,613). It should be noted that the client missed one additional deposit in these first five years creating a drag on projections. The numbers are not quite as good as projected but they also are not missing by wide margins.

Manulife Performax Policy: Male, Age 22,                  Non-Smoker, $1,200,000 Death Benefit

DATE Total Premium Cash Value Death Benefit
Nov 21/01 $32,521 $0 $1,200,000
Nov 21/02 $32,521 $16,843 $1,482,364
Nov 21/03 $32,521 $35,147 $1,764,549
Nov 21/04* $32,521 $41,679 $1,840,738
Nov 21/05 $32,521 $61,912 $2,109,871
Nov 21/06 $32,521 $83,792 $2,376,050
Nov 21/07 $32,521 $112,201 $2,702,557
Nov 21/08 $32,521 $151,252 $2,963,236
Nov 21/09 $32,521 $205,043 $3,229,536
Nov 21/10 $32,521 $263,710 $3,509,288
Nov 21/11 $32,521 $324,991 $3,787,133
Nov 21/12 $32,521 $390,237 $4,048,655
Nov 21/13 $32,521 $440,545 $4,296,634

  Source: Manulife Financial – Actual Client Policy

When looking at the original 10 year projection when the policy was issued, it appears as though the numbers are holding up better as time goes on as the effects of the missed additional deposit are lessened. The policy had a cash value of $324,991 (vs. a Projected $350,329) and a death benefit of $3,787,133 (vs. a Projected $4,067,426). Given five dividend decreases by this point as well as one missed deposit, these numbers still hold up fairly well despite lagging initial projections. It should be noted that the projections tend to hold up better in the earlier years as the dividends being paid into the policy are generally smaller as they are heavily influenced by existing cash values. As the policy grows along with its cash values, so to does the value and impact of those dividends on the policy. Since this policy is still in its early years (Whole Life is a longterm commitment), the premiums being paid and the additional deposits at this time are doing much more of the work growing the policy. Looking fifty years out, the numbers may vary more greatly from projections but for now, we want to focus on actual results and how did they hold up against other actual results, something that this policy appears to have done pretty well over its first 12 years.

Actual performance versus hypothetical illustrations.

Was the decision to purchase a whole life policy a good choice looking back with the benefit of actual results? Some financial advisors believe whole life is an inferior product that pays a poor return. Is this belief supported by historical performance of actual whole life policies?



To answer this question, this two part article will examine this participating whole life policy by addressing three primary questions: First, how much could have been accumulated if he had simply invested his annual premium in some other safe investment instead of buying life insurance? This is an important question because, although the primary purpose of whole life is to provide a death benefit, it can be purchased by someone who may not need life insurance, such as a single person with no dependents, or it can be purchased by someone looking for a investment savings plan.

Second, could he have done better if he had bought term life insurance and invested the difference? Even though the whole life versus term question has been debated endlessly in numerous publications for nearly 40 years, there is still much disagreement among financial advisers on the subject.

It is difficult to compare whole life with term and a side investment fund because whole life dividends are not guaranteed and because the future rate of return on the side investment funds cannot be known. No matter how good whole life projected values may appear compared to a term and invest illustration, these are still only hypothetical values. That is why it is helpful to examine historical performance of an actual whole life policy and a matching period of actual investment returns. The credited cash values are certain and can be compared to the actual performance of other options.


PART ONE: Was the decision to purchase a whole life policy a good choice?

A Typical Policy.

This Manulife Financial policy is a good example of an overfunded participating whole life policy. This policy was originally bought by a 22 year old through TD Waterhouse which could have been available to anyone looking for this type of product. This specific policy has a larger face value and may be larger than the typical policy but its larger numbers are useful in illustrating the impact of different rates of return. With smaller numbers, it may be more difficult to appreciate the impact of the difference in rates of return. In this case, the size of the policy is proportional to the rest of the investments that the client holds and their family situation. Regardless of size, this is an actual client case and the comparison of investment options remains the same.


Whole life must be compared to other safe stable investments.

What type of investment could he have used had he not purchased whole life? Some financial advisors might suggest an equity fund or another exposure to the stock market as an alternative, but this would not result in a truly, valid comparison especially in a short period. One must always account for an investors risk profile. Whole life cash value is a safe, stable investment which, unlike mutual funds or equities, is not subject to the risk of stock or bond market declines. Whole life cash values, once credited, never go down unless withdrawn. As with any investment, one must match the risk profile of their investments and their clients. By its nature, a participating whole life policy may not offer as spectacular an internal rate of return but it also does not carry the same risk, volatility, or possibility of loss. It is like comparing the tortoise and the hare. The stock market could and likely would race out ahead at any one given year but participating whole life insurance policy is like the tortoise. Slow and steady. When the market experiences losses, the whole life policy will continue to accrue cash values and grow. I suspect that many investors underappreciate the effects of each year of losses can have on a portfolio. By holding a whole life policy, one assumes far less risk than investing in the markets but I am curious to show what the returns might be for an investor who took on far greater risks with their money in order to illustrate the risk-return universe available to an investor over this period. Although risk can take many forms, to most investors I suspect, risk is meant to reflect the possibility of losing money and possibly as much as all of it. So, I will compare final numbers at the end of the period just to see how the tortoise holds up to the hare when looking at this last twelve year period, especially one as volatile as we have had in the markets over the past twelve years to see if it was worth taking on all of that extra risk and volatility.




Savings versus Investing – There is a Difference

Before going any further with using a comparison of whole life and the stock market or any other market-based investment, I want to examine the difference between saving and investing and ultimately, I believe that it cannot be summed up any better than this excerpt from Dwayne Burnell’s book, A Path to Financial Peace of Mind.

Over the years the terms “saving” and “investing” have been combined and used together to describe a variety of financial products. Through common and inaccurate usage, these concepts have overlapped and become fused. We use the terms interchangeably as though they mean the same thing. But they don’t. “Saving” and “investing” are two very distinct concepts. Your savings consists of money that you don’t want to lose; whereas, money you invest is money that is subject to the risk of loss.

Any money that you designate as “savings” should be in a financial vehicle with low risk, where you can access the money, with no fear of loss of the principal. To be clear: when you have money in the stock market, no matter what it is called, it is an investment, subject to loss. Money in a mutual fund or in the stock market may grow and accumulate but that this money is always at risk for loss. Saving is really only accomplished in a financial vehicle in which your money cannot be lost.

For a solid financial strategy, there should be two groups of money. There should be money that is saved and not subject to risk of loss, and there should be another group of money that is invested. A proper financial strategy will have these two components clearly distinguished. We need to truly understand that the invested money has the potential for greater growth but also has a greater risk of loss.

To give you an example of how we commonly confuse our thinking with regard to saving and investing, let’s look at how we talk about our (RRSP). I often have clients tell me that they are saving for their retirement in their (RRSP). (Even the name itself leads to some confusion as an RRSP is actually short for a Registered Retirement Savings Plan. The word savings is right there in the name.) But what are the financial products quite often held inside an (RRSP)? Mutual funds (or other market investments). Mutual funds are an investment product, not a savings product, because they expose your money to the risk of loss in the stock market. And loss is just what many people experienced in 2008 and 2009 with respect to their (RRSP) account.

A lot of retirement “savings” accounts are really retirement “investment” accounts. By confusing and blending the fundamental concepts of saving and investing, we confuse the risk associated with our money. By not being clear about whether our money is in a savings or investment product, we can end up believing that money is less exposed to risk than it really is.

In recent years I have also witnessed the downgrading of saving as a financial strategy. In our current financial climate we focus on the excitement and possibility of greater returns that the stock market investments may yield. Certainly, in the stock market, it is possible to make larger gains than with the savings product. However, we neglect to think about the impact that the potential loss of our money will have on us, our family and our future. I am not suggesting that we give up on the stock market, only that we become more aware of the risks and vicious cycles that chasing returns can be.

— Dwayne Burnell, A Path to Financial Peace of Mind., 2010 p. 6-8.


To maintain a balanced portfolio consistent with his risk propensity as a 22 year old, he should allocate approximately 30 to 40% of his investments to use safe, stable accounts [Some advisors may refer to this portion as fixed income] while 60 to 70% can be in growth accounts such as the stock market or other market-based investments. Some advisors may choose different allocations but it is the belief of this author that especially  in today’s volatile investing market, one should be more conservative and maintain a safe savings component to their financial plan at all times. A participating whole life policy and its cash values have always counted as part of the 30 to 40% allocated to safe, stable accounts. It may not be a traditional fixed income product but its cash values grow with time with no market risk and provided premiums continue to get paid, no possibility of its cash values to go down or be lost. This characteristic fits the definition of an ideal savings product or safe, stable account.

Income taxes must be considered.

As with any investment, taxes need to be taken into account. Short of registered accounts here in Canada, returns would be reduced by income taxes either in the year that it was earned or if not annually, then the taxes will be payable in full when you sell. Either way to get a proper comparison, one must look at after-tax returns and final cash in the hand when you are finished with any investment. Personal income tax rates can vary greatly according to income but in this client’s personal case in British Columbia, he has been paying the top marginal tax rate of 43.7% which is the rate that I will apply when comparing after-tax investment returns.

Managing Expectations

Today, our investment environment is very different than in the previous decades. In university and among many financial advising circles, I have typically heard a long-term expectation is 7% for a stock market return, 5% for a fixed income bond market return, and 3% for a treasury bill return. This is all good in theory but actual numbers since the turn of the millennium when this client started investing suggest a different reality. In truth, they have all been much lower. For each of these investment classes, I have used a calculation called the compound annual growth rate because I think most people when thinking of a rate of return, they think of it as the same amount this year, next year, the year after, and every year after that. By simply averaging posted annual rates of return, this does not produce the right number. For instance, the “average” annual rate of return from the TSX Composite Index since January 2000 is 5.13%. Yet if we apply this number to the market value in January 2000 of 8429 and consider it a constant annual rate of growth of 5.13%, the TSX Composite Index should have stood at around 17,000 and not the 13, 548 that is did in reality at the end of our 12 year period in 2013. If we smoothed out the return to a constant and table growth rate year over year, the TSX actually grew at only 3.45% per year. This is because down years with losses affect annual percentage calculations disproportionately and skew the results.

For instance, if you have $1000 and it went down 50%, you would lose $500 but that next year you would need a 100% return on your new balance of $500 to earn back your initial loss of $500 and get


back to the original $1000. When looking at an average over this two year period of (-50%) and +100%, the average return appears to be 25% despite simply regaining your loss from the year before. When any losses are concerned, a compound annual growth rate is a much more accurate number to refer to while simply using “averages” can be terribly misleading.

A Quick Example of the Misleading Effects of One Loss over an Investment Period

Date Opening Balance Rate of Return Gain/ (Loss) Ending Balance
Year 1 $1000 (-50%) (-$500) $500
Year 2 $500 +100% $500 $1000
Average Rate of Return +25%

Whole life vs Treasury Bills

The ultimate “no-risk” investment benchmark is typically the Government of Canada 6-month Treasury Bills. Many clients may not invest directly in Government of Canada Treasury Bills but they do form the basis for rate decisions at various banks for their Guaranteed Investment Certificates (GICs) which investors do hold much more widely. Over the last 12 years, annual rate of return on Government of Canada Treasury Bills peaked at 4.182% in 2007 and hit a low point of 0.283% in 2010. Over the last 12 years, Treasury Bills provided a total return of 28.6%. Smoothed out over the entire period, treasury bills had a compound annual growth rates of 2.12% (This represents a smoothed out rate at which the investment would have grown at if it grew at a steady and constant rate over the entire period). Once taxes are factored in, which get paid each year on the interest earned, the total return drops to 15.3% over 12 years which works out to a smoothed compound annual growth rate of only 1.19%.

Investment Returns for Government of Canada 6 Month Treasury Bills

      USING $32,521 Annual Deposits
Date Rate Pre-Tax Returns – $1000 Post-Tax Returns – $1000 Pre-Tax Returns Post-Tax Returns
1-Jan-02 2.122% 1021.22 1011.95  $    33,211  $             32,910
1-Jan-03 3.000% 1051.86 1029.04  $    67,704  $             66,536
1-Jan-04 2.258% 1075.61 1042.12  $ 102,488  $           100,316
1-Jan-05 2.523% 1102.75 1056.92  $ 138,415  $           134,724
1-Jan-06 3.670% 1143.22 1078.76  $ 177,210  $           170,700
1-Jan-07 4.182% 1191.03 1104.16  $ 218,502  $           208,006
1-Jan-08 3.459% 1232.22 1125.66  $ 259,706  $           245,211
1-Jan-09 0.910% 1243.44 1131.43  $ 294,886  $           279,155
1-Jan-10 0.283% 1246.95 1133.23  $ 328,333  $           312,173
1-Jan-11 1.160% 1261.42 1140.63  $ 365,040  $           346,945
1-Jan-12 0.925% 1273.09 1146.57  $ 401,239  $           381,442
1-Jan-13 0.996% 1285.77 1153.00  $ 438,080  $           416,284
Source: Bank of Canada
Total Return for the Period Before Taxes – 28.6%
Compound Annual Growth Rate of Return Before Taxes – 2.12%
Using the personal tax rate in BC  of 43.7%.
Total Return for the Period After Taxes – 15.3%
Compound Annual Growth Rate of Return After Taxes – 1.19%
*- The assumption is to reinvest total proceeds the following year upon maturity of each security.

In this case, using the $32,521 annual premiums and investing them each year in Government of Canada Treasury Bills would have produced a total return of $438,080 compared with the existing cash value of the participating whole life policy of $440,545.

So on a cash for cash basis, on the surface of it, the cash values have marginally outperformed treasury bills as an investment vehicle except for two things. There have been no taxes accounted for with the treasury bill investment. With treasury bills, one would have paid taxes each year as they came due thus having less money to invest the next year. Once taxes are factored in, the cash value of a whole life policy looks even better as they can be accessed quite easily with little or tax consequence. Tax policy can change at any time but as of this writing, accumulation is tax-free within a whole life policy and always has been so since the first policies were offered in Canada over 150 years ago. Also, withdrawing money can be tax-free if you are below your adjusted cost base. (The adjusted cost base is a fancy way of saying the amount of money you have paid into your policy minus the pure cost of insurance.) If you need an amount above your adjusted cost base, you can always take a simplified loan from a bank secured with your policy which according to today’s tax policy, allows you to access your money tax-free as it is a bank loan not so dissimilar to a mortgage except the loan is secured by your policy and not your house. So after accounting for income taxes payable when they would have become due using the 43.7% marginal tax rate in BC for this client, Government of Canada Treasury Bills would have produced a total cash in hand return of $416,284. All of a sudden, the cash values provided from a whole life insurance policy start to look better.

The other thing to take into account is the future outlook on a pure cash basis. With current treasury bill rates, you are looking at likely a 1% or maybe 2% rate of return for the indefinite future with no guarantees or real clue what the rates will be at any point in the future. Rates will go up again but no one is sure when that may actually happen and no one is sure when they will come back down again. The cash values within a whole life policy will grow a little bit more each year going forward. Part of that growth is built into the policy in a stable, predictable manner.

So just how much will it grow?

So just how much will it grow? There are a few parts to this answer. The first part of that answer is simple. When you pay an additional deposit into your policy, your death benefit and in turn your cash values will grow. It is like paying yourself a dividend that is used to buy a little more insurance which in turn has a greater cash value itself and helps your cash values grow even more over the years. As an additional deposit, you can guarantee making that payment or since it is up to you for that matter, not guarantee that payment.

The second way your cash values grow is policy dividends. This amount is not a guaranteed amount but most insurance companies have not missed a single dividend payment in over 150 years. This amount depends on a number of factors intrinsic to your policy which lie beyond the scope of this article. The dividend amount has and will fluctuate over time. That said, once your dividend is in your policy, that additional amount that you see on a statement is guaranteed no matter what happens with any future dividend scale changes or swings in the market until you draw out those funds from the policy or let your policy lapse by not continuing to make the required premium payments.

There is a third way that your whole policy grows in addition to policy dividends and additional deposits. Your policy cash values grow in way which is vastly underappreciated or unknown to many investors and advisors alike. There is a built-in contractual obligation for your cash values to grow to exactly match your death benefit over time. This can be significant. This means that if you buy $1 million policy and that you live long enough and pay your premiums, you know that you are guaranteed cash value over the life of the policy will be equal to at least that original $1 million death benefit. The point at which your cash values match your death benefit varies with each contract but it usually occurs around age 100. This means that at any point in time, your death benefit shows you where your cash values will be if you live long enough and if you don’t live long enough, that death benefit will get paid out to your beneficiaries anyway. It’s like a savings plan that will reach its pre-determined target one way or another as long as you do your part and pay your premiums as scheduled. I don’t know of any other savings vehicle that provides a guaranteed target at any point in time so you can know how much your savings will pay off. The more efficient you are with your savings, the more that target amount will grow and you get to see an update on that progress each and every year on your annual statement.

So what does this mean to a client? When the cash value is guaranteed to match the death benefit, it means that the cash values will grow a little bit each and every year regardless of any other factors to catch up to the death benefit. It is done by a formula created by the insurance company that spreads out the growth over the entire period. Remember that Whole Life Insurance is a long time commitment and not a get rich quick scheme. One of the first major benefactors of having lived long enough was John D. Rockerfeller who lived to age 96, at which point according to then in-force practices was paid out the whole value in cash of his life insurance policy which amounted to $5 million in 1936 in the midst of the Great Depression. Today, that amount would be the equivalent of $85,701,438. I suspect that at this point in the life of John D. Rockerfeller, he did not need the money but he did live long enough to see the cash value equal his death benefit and received those benefits without dying first (see Christopher Klein’s book ”10 Things You May Not Know about John D. Rockerfeller”.

Given that the policy is contractually guaranteed to have the client’s cash values match the client’s death benefit, in this case, the client had originally bought a $1.2 million policy but today in just 12 years, it is worth $4.296 million. So now, if the client lives long enough and makes all of his scheduled payments, his cash values are guaranteed to reach at least $4.296 million. As you make your annual payments, you get to see the benefits of your discipline and also get to see how much more the potential of your savings plan has grown. It becomes much easier to save when you can see a growing benefit and know how much your savings are going to grow over time.

Even as the death benefit grows, the contract is still obligated to have the cash value and death benefit match. The date of when this occurs doesn’t change but it does mean that the amount the cash values have to grow each year increases in order to have the values match over time. As evidenced in this case study, the cash values will grow faster as time goes on (Refer to the Table on Page One of this article). This is why comparing whole life policies based only upon their cash values becomes difficult because the growth rate through the first ten years is very slow but then it can accelerate quite quickly over the rest of the life of the policy.

So what happens if the client dies tomorrow and his cash values are nowhere near that death benefit value? Well, that’s where the big benefit of insurance comes in, the beneficiary get paid his full death benefit (If you have taken any loans against the policy, these loans are settled out first but if no loans were taken and no money withdrawn, the beneficiary gets the full death benefit.)

So the value of a whole life insurance policy goes far beyond the cash values in the policy at any given point in time but it is still reassuring to know the policy is competitive with other savings vehicles.

Whole life vs Government Bonds

A good fixed income choice would normally be a five-year Government of Canada Bond. Over the last 12 years, the annual rate available on five-year bonds peaked in 2002 at 4.71% and has fallen to a low in 2012 of 1.36%. In calculating the benchmark return here and to eliminate market risk and interest rate risk, it is assumed to buy a bond at its issue and hold it right through to maturity. This way you eliminate price and yield fluctuations throughout the entire holding period. And coincidentally, this approach actually provides the highest return over the period by capturing two of the highest yields and paying it out over the entire five-year holding period of that bond. Over the last 12 years, five-year Government of Canada bonds provided a total return of 52.7%. Smoothed out over the entire period, five-year government bonds had a compound annual growth rate of 3.59%. It should be noted though that if you take out taxes at the client’s rate of 43.7%, the total return drops to 29.7%. Remember that with bonds, you get paid a coupon payment each year but you also have taxes to pay on that amount each time it is received. After paying his taxes throughout the period, the compound annual growth rate in a five-year Government of Canada Bond is only 2.19%.


Investment Returns for 5 Year Government of Canada Bonds

Date 5 Year Bond Rates Date Actual Investment Pre- Tax Returns Post-Tax Returns
Jan 1/02 4.71% 1-Jan-02 INITIAL DEPOSIT $1,000 $        1,000
Jan 1/03 4.27% 31-Dec-02 Coupon Received 4.71% $        47.10 $        26.52
Jan 1/04 3.71% 31-Dec-03 Coupon Received 4.71% $        47.10 $        26.52
Jan 1/05 3.52% 31-Dec-04 Coupon Received 4.71% $        47.10 $        26.52
Jan 1/06 3.98% 31-Dec-05 Coupon Received 4.71% $        47.10 $        26.52
Jan 1/07 4.08% 31-Dec-06 Coupon Received 4.71% $        47.10 $        26.52
Jan 1/08 3.50% 1-Jan-07 FUNDS REINVESTED $1,235.50 $1,132.59
Jan 1/09 2.03% 31-Dec-07 Coupon Received 4.08% $        50.40 $        28.38
Jan 1/10 2.46% 31-Dec-08 Coupon Received 4.08% $        50.40 $        28.38
Jan 1/11 2.56% 31-Dec-09 Coupon Received 4.08% $        50.40 $        28.38
Jan 1/12 1.36% 31-Dec-10 Coupon Received 4.08% $        50.40 $        28.38
Jan 1/13 1.50% 31-Dec-11 Coupon Received 4.08% $        50.40 $        28.38
1-Jan-12 FUNDS REINVESTED $1,487.50 $1,274.46
31-Dec-12 Coupon Received 1.36% $        20.23 $        11.39
31-Dec-13 Coupon Received 1.36% $        20.23 $        11.39
FINAL BALANCE $  1,527.96 $  1,297.24
Total Return 52.7% 29.7%
Compound Annual Growth Rate 3.59% 2.19%
Using the client’s personal tax rate in BC  of 43.7%.
*- The assumption to determine benchmark rates of return is to buy and hold each bond to the full term of 5 years. Using this data set, it actually provides the best selection of yields.
*- There is interest rate risk with bonds but by buying at issue and holding to full term, we can effectively limit any impact that interest rate changes would have on bond prices.

Source for Rates: Bank of Canada

When making a comparison with annual deposits rather than a single lump sum, the calculations get a bit more complicated as each bond purchased will be held for five years to its maturity unlike the six months required to hold a Treasury Bill until maturity. To account for this, we will apply a “bond ladder” by buying a new bond each year using all available funds at that time. In this case, using the $32,521 premiums and investing them each year in a five year Government of Canada Bond ladder, our client would have produced a total after tax return of $429,893 compared with the existing cash value of the participating whole life policy of $440,545. Again, the whole life policy, viewed simply as a safe and stable savings product, performs better as a final cash-in-hand product even against five year Government of Canada Bonds.

Investment Returns for 5 Year Government of Canada Bonds “Bond Ladder”

USING $32,521 Annual Deposits

Rates Post-Tax Returns Coupon Payment After Tax Proceeds TOTAL INVESTED
Initial Deposit $     32,521
2002 4.71% $     32,521 $  1,531.74 $     862.37 $             32,521
2003 4.27% $     33,383 $  1,425.47 $     802.54 $             65,904
2004 3.71% $     34,186 $  1,268.30 $     714.05 $           100,090
2005 3.52% $     34,900 $  1,228.48 $     691.63 $           134,990
2006 3.98% $     35,592 $  1,416.55 $     797.52 $           170,582
2007 4.08% $     68,910 $  2,811.53 $ 1,582.89 $           206,971
2008 3.50% $     69,631 $  2,437.07 $ 1,372.07 $           243,218
2009 2.03% $     70,200 $  1,425.06 $     802.31 $           279,232
2010 2.46% $     70,288 $  1,729.10 $     973.48 $           314,621
2011 2.56% $     70,570 $  1,806.60 $ 1,017.12 $           349,600
2012 1.36% $   107,179 $  1,457.63 $     820.65 $           387,868
2013 1.50% $   107,137 $  1,607.06 $     904.77 $           425,375
Add in Final Coupons Received $               4,518
Grand Total Final Cash $ 429,893

Source for Rates: Bank of Canada

Conclusion – Part One 

One very clear conclusion can be drawn from this actual case history:

Participating whole life has actually provided the equivalent of a very good stable savings option over the past 12 years. In addition to a better cash value gain over those 12 years, this client has had substantial life insurance coverage at no additional cost. The after-tax rate of return of his whole life policy exceeded the return of stable investments which provided no insurance coverage. Had the client have met his unfortunate end before the end of this case study period, then on a cash on cash basis, the insurance policy would have provided a far, far superior return as it would pay out its death benefit in full. I suspect though, that the client is happiest still being alive, having the insurance coverage in place, and knowing that his money actually performed better than savings it in other possible safe, stable products like a government bond or a treasury bill. Although some financial advisors tell clients to never buy life insurance as an investment, this case history proves that whole life has performed like a superior long-term stable savings product in addition to providing life insurance coverage.

It is important to note that participating whole life must normally be held at least 10 to 15 years before the total cash value exceeds the total premiums paid. In this particular case, it took 11 years. If canceled before then, the net cost of whole life coverage may significantly exceed the cash values provided. For this reason, whole life should never be purchased as a short-term policy. It is suitable only for those who maintain it long-term and build a legacy over a lifetime. Wealth does not happen overnight but is rather created by discipline and good choices over a period of years.


Douglas Guest – 2014