We’re making changes to participating life insurance policies issued by Mutual Life, MetLife, Clarica, Allstate and Prudential.
With participating life insurance, you share in the earnings of the participating account. These are policyholder dividends. We don’t guarantee them and they can change from year to year.
Each year, we look at the dividends we can give to each policy. We also decide the next year’s dividend interest rate.
Starting January 1, 2021, the Clarica dividend interest rate is changing from 6.55% to 6.25%. This is mainly due to low interest rates in the market. We also look at mortality, expenses, taxes and how many people choose to cancel their policy.
We’re also changing how we calculate dividends. We believe our new approach will provide more stable dividends in the long term.
The Board of Directors of Sun Life Assurance Company of Canada approved these changes. They’re based on Sun Life's Dividend Policy and our Appointed Actuary’s recommendation.
Sun Life manages the participating account carefully with dedicated and professional teams. Although we don’t guarantee dividends, we’ve paid them to Clients every year since 1877.
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Your policy continues to give you a guaranteed benefit as long as it’s in force. Your annual statement includes details about your policy’s performance.
Your advisor can help you understand how your policy works and how it’s performing. You can also contact us at 1-877-SUN-LIFE (1-877-786-5433).
Answers to your questions
Q) What is participating life insurance?
A) Life insurance involves the transfer of risk from an individual to a life insurance company. With participating insurance, a portion of the risk is shared among the policyholders and the company. We call it “participating insurance” because the policyholder participates in the risk along with the insurance company. Your participating life insurance policy gives you the opportunity to share in the earnings of the participating account.
We use a portion of the premiums we collect from participating policyholders to pay immediate claims and expenses. We keep the rest in the participating account and invest it to earn income.
Par policyholders may share in certain rewards when their policies perform better than originally expected. This comes in the form of policyholder dividends. A policyholder dividend is a portion of the earnings from the par account where the investments, expenses and other items related to the company’s par policies are tracked.
We manage the participating account to help ensure there will be enough money to cover all current and future obligations to you and other policyholders. We pay the remainder as a policyholder dividend. Dividends aren’t guaranteed and can change each year. Your right to receive policyholder dividends is described in your policy.
To learn more, see Answers about participating life insurance.
Q) How are dividends calculated?
A) Participating policies are designed based on a set of assumptions about the risk to be shared with the policyholder. These assumptions include investment returns, mortality, expenses, taxes and the number of policyholders we assume will cancel their coverage.
Policies are grouped based on certain factors such as the type of policy and when it was purchased. Each year the company compares our assumptions to the actual results and the anticipated future results for your policy group. This assessment defines the experience for the group. The experience of each group determines the dividends available to be allocated within the group.
Policyholder dividends are not guaranteed. They can change from year to year. When the experience is better than our assumptions, earnings are generated that we can distribute as policyholder dividends. When the actual experience deteriorates, the available earnings to be distributed as dividends will decrease. If the experience is equal to or worse than our assumptions, the dividends available to policyholders may be zero.
To read more, see Answers about participating life insurance.
Q) What is a dividend interest rate?
A) The dividend interest rate is a rate we set. It reflects the investment experience of the participating account that we can give to you as a dividend.
The dividend interest rate is just one component used to determine your dividend and the performance of your participating policy. Your dividends can be affected by the design of your product, the pattern of guaranteed cash values, the number of premiums paid, your age, and other risk characteristics.
Q) Why is the dividend interest rate decreasing?
A) We review the dividend scale each year to help determine the dividend we allocate to your policy.
The investment return experience is normally the most important factor influencing the earnings we have available to credit as policyholder dividends. We’ve decreased our dividend interest rate mainly because of lower than expected investment returns and interest rate decreases in this low interest rate environment.
Q) What else do you review along with the dividend interest rate?
A) The dividend interest rate is only part of your dividend. Other portions of your dividend include mortality, expenses, taxes and how many people have chosen to cancel their policy. This year we also updated these dividend factors.
Q) Why are you changing how you calculate dividends?
A) We’re moving to a more detailed, specific determination of dividends for each policy. We believe our new approach will provide more stable dividends in the long term. We continue to pass along experience based on investment returns, mortality, expenses, taxes and how many people choose to cancel their policy consistent with Sun Life’s Dividend Policy.
Q) How will these changes affect my policy?
A) As a result of these changes, your dividend could increase or decrease depending on factors like your policy type, age, smoking status and the way you set up your policy when you purchased it.
If you’re using dividends to pay your premiums, you may need to resume paying out of pocket. The change in dividend interest rate may also affect your payment amount and your policy’s cash value growth. Your policy continues to provide you with lifetime insurance protection, as long as it is in force.
Your advisor can take a closer look at your policy to help you understand how these changes affect it.