Determination of dividends

Dividends are determined annually according to the financial performance of each participating account’s dividend scale. The scale depends on a number of factors, such as the return on investment which includes the interest rate, mortality rate and taxes and expenses paid by the insurer.The dividends are not guaranteed and may differ from what is shown in the illustration reports.

The illustration reports demonstrate the changes to the policy values of different scenarios. The software can illustrate 3 scenarios: at the current rate of 5.75%, at the reduced rate (current minus 1%, which appears by default) and at the alternate selected rate. Alternate scenarios can be generated at the current rate -2%, -1.5%, -0.5% and +0.5%.

Dividend options

The policyowner must choose one of the five options available for the dividends received at each contract anniversary.

This choice significantly impacts how the policy values will grow.

Options available by product

ProductDividend options available
Estate Enhancer

Accelerated Growth
  • Paid-up additions (PUAs)
  • Enhanced insurance (T1 + PUAs)
  • Annual premium reduction
  • Cash payment
  • Dividends on deposit
  • Enhanced insurance (T1 + PUAs)

Paid-up additions (PUAs)

Best option for maximizing the amount payable upon death and the cash surrender values in the long term.

  • Dividends are used to buy PUAs (single premium permanent life insurance amounts on top of the amount of basic insurance coverage).
  • PUAs generate additional dividends as soon as the second year, creating a compounding effect.
  • The total cash surrender value provides an additional tax advantage, as it increases free of taxes.
  • The amount payable upon death and the cash surrender value increase.

Enhanced insurance (T1 + PUA)

Best option for maximizing the amount payable upon death and the cash surrender values in the medium term.

  • Dividends are used to purchase enhanced insurance in the form of a combination of one-year term insurance (T1) and paid-up additions (PUAs), on top of the basic insurance amount.
  • The amount of enhanced insurance you can illustrate depends, among other things, on the amount of basic insurance coverage, the age, the gender, the rate class and the premium payment period.
  • It can be guaranteed for 10 years or for life, depending on the product. The term is set at the time of underwriting.
  • Once the T1 purchase is no longer required to cover the enhanced insurance, all dividends are used to purchase PUAs that increase the amount payable upon death. In time, the enhanced insurance will be made up solely of PUAs.
  • T1 insurance can be converted into an eligible permanent life insurance product if the following conditions are met:
    • The policy was issued less than 7 or more than 10 years ago, depending on the product.
    • The converted permanent life insurance amount cannot exceed the T1 insurance amount in force.
    • The converted permanent coverage does not provide for any indexing of the insurance amount or a premium refund upon death.
    • The insured has to be under 70 years.
    • The tax-exempt test requirement has been met.
    • The premium is calculated as per the rate in effect and at the nearest birthday.
    • The permanent coverage becomes effective on the date on which the application is received at the head office.
    • The enhanced insurance is reduced by the T1 insurance amount converted into permanent coverage. Then, the dividend option is automatically changed to PUAs.
  • The enhanced insurance amount is guaranteed for 10 years or for life. The guarantee period is chosen at the time of issuing the contract.

Annual premium reduction

  • Dividends are used to reduce the annual premium.
  • If there are not enough dividends to pay the whole premium, the policyowner must cover the difference. If they are higher than the premium, the excess is paid to the policyowner by cheque and may be taxable.
  • The amount payable upon death remains consistent over the years.

Cash payment

  • Dividends are paid by cheque to the client and can be taxable.
  • The amount payable upon death remains consistent over the years.

Dividends on deposit

  • Dividends are deposited in a savings account managed by Desjardins Insurance. Upon death, the accumulated dividends from the savings account are added to the amount payable, tax-free.
  • Dividends credited may be taxable. The account generates taxable interest credited once a year.
  • Withdrawals from this account are allowed at any time.
  • This option allows the cash surrender values and the amount payable upon death to grow.

Modifications to dividend options

Clients with Accelerated Growth or Estate Enhancer products may change options at any time, while clients with a Prosperity product may do so after 10 years, if the policy remains exempt from tax. The direction of the arrows below indicates the possible changes.

The Enhance Insurance option can be replaced by the Paid-Up Additions option. The opposite is not applicable. The Paid-Up Additions option can be replaced by the Cash Payment, Annual Premium Reduction or Dividends on Deposit options. The opposite is not applicable.