In a decreasing interest rate environment investment grade bond performance has come under greater scrutiny. A small but growing segment of insurance and financial professionals offer participating whole life as a bond alternative for conservative clients or part of their conservative portfolio positions. That in itself may be a good option.
The base policy has contractual guarantees that can appeal to conservative portfolio management with the added feature of potential for tax free distributions. In addition, but not guaranteed, are annual dividends, special persistency dividends and terminal dividends which potentially could also be distributed tax free.
But many participating whole life proposals use paid up addition (PUA) and term riders to increase the accumulated cash values. Depending on the carrier, the term rider may have two rates: current company practice and the contract’s guaranteed pricing. The PUA dividends as other dividends are not guaranteed.
So, discussions with prospects have inherent mine fields to traverse in their communications with consumers, separating what is and is not guaranteed. Participating whole life insurance is a high commission product that historically carried negative connotations and its insurance, so it’s already questionable in some circles. Mistakes in the communication and design of this product can be fraught with potential danger, so educate yourself or some attorney will do it for you.