Whole life dividends explained: How they work

Dividends are a portion of the insurance company’s profits that are paid out to policyholders who own participating whole life insurance policies. Insurance providers may not guarantee dividends, but you can use them to lower your premiums, buy more coverage, or take them as cash if they are paid. In fact, in 2023, participating whole life insurance accounted for 88% of total whole life sales in Canada, with premiums rising by 12%, driving the overall growth in the market.

If you’re considering purchasing whole life insurance or if you already own a participating policy, understanding how dividends work could be a game-changer. In this blog, we are going to cover everything you need to know about dividends.

What are whole life insurance dividends?

Whole life insurance dividends are a unique feature of participating whole life policies that allow policyholders to share in the insurance company’s financial success. These dividends are declared annually and are influenced by factors like investment performance, mortality experience, operational efficiency, and more. 

While dividends are not guaranteed, they can significantly enhance your policy’s long-term value when used strategically.

Key features of whole life insurance dividends

Dividends in participating whole life insurance policies: Dividends are only available with participating whole life insurance, meaning only this type of policy is eligible to receive a share of the insurer’s surplus profits

Performance-based and not guaranteed: Dividends are declared annually and depend on the performance of the participating account. They can vary from year to year and are never guaranteed

Flexible dividend options: Policyholders can choose how they want to use their dividends — whether to buy paid-up additions (PUAs), reduce premiums, take cash, or leave them to accumulate with interest inside the policy

Favourable tax treatment in Canada: As long as the dividends remain within the policy or are used for certain approved options, they are not considered taxable income under Canadian tax laws

How do whole life insurance dividend rates work?

Whole life insurance dividend rates are determined by the insurance company’s financial performance in a given year. Dividends are usually a percentage of surplus profits returned to policyholders.

Dividend rates are influenced by three main factors: the insurer’s investment earnings, mortality claims (how many claims they pay out), and operational expenses.

• Investments: The company invests the money that it receives from policyholders into mutual funds, stocks, etc. If those investments perform well, the dividend rate is higher as there’s more profit to share among policyholders
• Claims: If fewer people make claims than expected, the company saves money, increasing dividend rates
• Operational expenses: If the company’s costs to run the business are lower, there will be more money left over to share with policyholders

Each year, the insurer evaluates its financial performance and announces a dividend scale. If you have a participating whole life insurance policy, you may receive a portion of the profits based on that scale.

What is a Dividend Scale Interest Rate (DSIR)?

The Dividend Scale Interest Rate (DSIR) plays an important role in how life insurance companies calculate dividends for participating whole life policies. It represents the rate of return that the insurer expects to earn on the investments present in its participating account, after accounting for tax payouts, death claims and operational expenses. 

While the DSIR doesn’t determine the exact dividend payout, it has some impact on the dividend amount a policyholder may receive each year. A higher DSIR generally provides larger dividends, while a lower rate may lead to a smaller dividend payout. Insurance companies review and update the DSIR annually based on economic conditions, interest rate trends, and the overall performance of their participating insurance investment portfolio.

Do whole life dividend rates fluctuate every year?

Yes, whole life dividend rates fluctuate every year. Dividend rates depend on the insurance company’s financial performance, which can change from year to year. 

If the insurance company earns strong investment returns, has fewer death claims, and manages to operate at a lower cost, the dividend rate might stay the same or even increase over time. However, if the investment returns are low or other costs go up, the dividend rate will drop.

Insurers typically announce their dividend rates annually. Some insurance companies may strive to keep their dividend rates steady over the years, but it is not always guaranteed.

Are whole life insurance dividends taxable in Canada?

Whole life insurance dividends are not taxable in Canada as long as they are not withdrawn. If you use your dividends to buy more insurance, reduce your premiums, or just keep them within the policy to grow over time, you generally won’t have to pay any tax on them.

However, if you choose to collect the dividends as cash or use them to generate interest in a side account, your whole life insurance dividend will be considered taxable as income.

What can you do with your whole life insurance dividend options?

When your whole life insurance policy earns dividends, you can use them to reduce premiums, pay off policy loans, or collect dividends as cash. You can also use your whole life insurance dividend options to participate in paid-up additions or leave it in a side account to accumulate additional interest. A side account is a separate account where dividends can be left to accumulate interest, typically at a rate set by the insurer.

• Paid-up additions (PUAs): In paid-up additions, your dividends are used to buy small amounts of additional whole life insurance coverage. These PUAs will increase both your death benefit and cash value, and they grow tax-deferred inside the policy
• Reduce premiums: You can use your dividends to lower or fully cover your future premium payments towards the insurance policy. This can make your policy more affordable in the long run
• Take the dividends as cash: You can also receive your dividends as direct cash payments. But keep in mind that cash dividends may become taxable once they exceed the value of premiums you’ve paid
• Leave dividends to accumulate with interest: Some insurers offer an interest-bearing side account where your dividends can sit and grow over time. The original dividend isn’t taxable, but the interest earned is taxable each year
• Pay off policy loans: If you’ve borrowed against your policy’s cash value, you can use your dividends to repay that loan. This helps restore your policy’s full value, and you can avoid any interest buildup

Which are the best dividend-paying whole life insurance companies in Canada?

Several leading insurers in Canada—Canada Life, Sun Life, Manulife, Empire Life, and Equitable—offer participating whole life insurance policies. These plans provide guaranteed death benefits along with the opportunity for long-term cash value growth through dividends.

Manulife annual dividend rate

Manulife offers Manulife Par, a participating whole life policy with minimum coverage of $100,000, available through 10- or 20-year payment terms. Policyholders can choose between two dividend options: paid-up insurance or cash. 

For the current financial period, Manulife has set its dividend rate at 6.35%. The plan also allows policyholders to borrow up to 90% of the accumulated cash value.

Sun Life annual dividend rate 

Sun Life provides three participating whole life options: Sun Par Protector II, Sun Par Accumulator II, and Sun Par Accelerator. These plans offer permanent coverage with guaranteed death benefits and growing cash values. 

In the current financial year, Sun Life offers a 6.25% dividend rate. For the Par Protector and Accumulator plans, policyholders can choose from paid-up additions, annual premium reduction, cash payments, or interest-earning deposits. The Accelerator plan includes paid-up additions as its only dividend option.

Canada Life annual dividend rate

Canada Life offers Estate Select and Wealth Select as its participating whole life insurance products. These policies provide guaranteed cash value and do not impose a maximum coverage limit. 

For the current year, Canada Life pays a 5.50% dividend rate. Policyholders can select dividends in the form of cash payments, premium reductions, paid-up additions, or enhanced coverage.

Empire Life annual dividend rate

Empire Life offers EstateMax and Optimax Wealth, two participating whole life insurance plans designed to meet different financial goals. EstateMax focuses on estate preservation, while Optimax Wealth prioritizes early cash value growth. 

Empire Life currently pays a dividend rate of 6.00%. Policyholders can choose from enhanced coverage, paid-up additions, cash payments, annual premium reductions, or cash accumulation.

Equitable Life annual dividend rate

Equitable Life offers Equimax, a participating whole life policy that includes lifetime protection with guaranteed premiums, cash values, and death benefits. The plan provides flexible payment options through life pay or 20-pay structures. 

As of now, Equitable Life offers a 6.40% dividend rate. Dividends can be received as paid-up additions, enhanced protection, or cash payouts.

RBC annual dividend rate

RBC provides two participating whole life options: Growth Insurance and Growth Insurance Plus. Both plans offer lifetime coverage and allow cash value to accumulate over time. Coverage ranges from $25,000 to $25 million, with cash value accessible after five years. 

As of April 1, 2025, RBC has raised its current dividend interest rate to 6.30%. Policyholders can avail their dividends in the form of cash payment, paid-up additions, reduced premiums, interest-earning deposits, and enhanced insurance.

Dividend rates for the top whole life insurance companies in Canada

Can you predict future dividends?

No, future dividends on participating whole life insurance policies cannot be predicted with certainty. While insurers aim to maintain a stable overall performance so that they can offer stable dividends, it is not guaranteed. Dividends depend on multiple factors like investment returns, claims experience, and operating costs, and none of these can be predicted.

Each year, the insurance company’s board reviews the overall financial performance of the company to determine the dividend scale, which may increase, decrease, or remain the same.

How often are whole life insurance dividends paid out?

Whole life insurance dividends are generally paid out annually, usually on the policy’s anniversary date. 

If you have a participating whole life insurance policy that qualifies for a dividend, the insurance company will notify you and provide options for how the dividend can be used. You can choose from a variety of whole life insurance dividend options, such as purchasing additional coverage, reducing future premiums, leaving it to accumulate interest, or taking it as cash. 

While dividends are not guaranteed, they are one of the most lucrative features of participating whole life insurance that can increase the long-term cash value of your policy.

Do dividends increase the death benefit of a whole life insurance policy?

Yes, dividends can increase the death benefit of a whole life insurance policy when you apply them toward paid-up additions (PUAs).

PUAs add small amounts of fully paid permanent life insurance to your base policy. When you choose this dividend option, your insurer uses each year’s dividend to purchase additional coverage. This action increases both your policy’s cash value and its death benefit immediately.

On the other hand, if you use dividends to reduce premiums or take them as cash, your policy’s death benefit will remain unchanged.

What happens to dividends if I cancel my whole life policy?

When you cancel your whole life insurance policy, your insurer includes any accumulated dividends in the cash surrender value you receive.

If you used dividends to purchase paid-up additions, those additions become part of the policy’s total value. Likewise, if you left dividends on deposit to earn interest, your insurer returns the deposited amount along with the earned interest.

However, if you received dividends in cash each year, you won’t get any additional amount at the time of cancellation. Keep in mind that surrendering your policy may trigger tax implications, especially if the cash value exceeds the total premiums you paid.

How to get the best whole life insurance quotes in Canada?

To get the best whole life insurance quotes in Canada, it’s essential to compare offerings from a wide range of providers. 

At PolicyAdvisor, we simplify your entire insurance buying experience! We’ve partnered with over 30 of Canada’s top insurance providers to give you access to the best life insurance policies available. Our smart, AI-powered tools and user-friendly life insurance calculator deliver accurate quotes in under 60 seconds!

Most importantly, our support doesn’t stop at the purchase. Also, our dedicated team of licensed advisors provides lifetime after-sales service to help you navigate any insurance-related questions or needs. Schedule a call with us today!