Page 48 - A Canuck's Guide to Financial Literacy 2020

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Cash Value Withdrawal

The policy holder could withdraw from the accumulated cash value in the policy. This
withdrawal would affect the growth of the cash value and reduce any benefit that would be
paid. If the withdrawal exceeds the pro-rated adjusted cost base, then a taxable disposition
would occur, triggering taxable income.

Cash Value Loan

A policy holder can access the accumulated cash value of the policy in a form of a loan. The
loan would be issued by the insurance company and interest will be charged. Rates
charged can differ. The policy would continue to grow uninterrupted but if the loan isn't paid
back, it would be deducted from the death benefit, including interest.

**Keep in mind that the cash value can also be used a collateral at third party institutions if
needed**

Surrender the Cash Value

The policy owner can surrender or terminate the policy at any time. The individual would be
entitled to benefit from the excess premium payments. The surrender can be whole or
partial.

Keep in mind that the insurer may charge you surrender charges to cover their
administrative costs. The longer the policy is in effect, the lower the surrender charges.

Automatic Premium Loan
Whole life policies have a automatic premium loan feature which is by default. If the policy
owner misses their monthly premium, the insurance company would borrow against the
cash value in order to prevent the policy from lapsing.

Policy Dividends

Whole life insurance pays out dividends and when the policy owner submits the application,
they have to decide on how the dividends should be dealt with. Below are some of the
common options that are provided to the policy owner.

• Cash Receipt

The dividend would be paid out to the policy holder every year in cash.

• Premium Reduction

A policy holder can reduce the monthly premium that they pay through their
dividends payouts. Consider a policy holder who has an annual premium of $4,000