According to the flight instructor, just after levelling off from the initial climb over Lake Michigan, the oil pressure dropped well below normal operating conditions. The flight instructor directed the pilotreceiving instruction to turn the airplane back towards the nearest land. He then contacted air traffic control and declared an emergency. The engine oil pressure continued to decrease and about 3 minutes later the engine lost all power. The Cirrus Airframe Parachute System (CAPS) was deployed at 1,800 ft msl and best glide speed. The airplane descended by parachute and landed in the water where it floated for about 10 minutes before sinking. The flight instructor, pilot receiving instruction, and passenger remained in the water for about 45 minutes before being rescued by the Coast Guard. The airplane was not recovered and could not be examined after the accident, therefore the reason for the loss of engine power could not be determined.