Dividend Options on Whole Life Insurance - What you need to know

Life Insurance

Are you thinking about purchasing whole life insurance to meet your life insurance needs? Did you know that there are certain whole life policies that may pay out a dividend, in addition to guaranteed cash values? Certain life insurance carriers may declare an annual dividend after paying claims, expenses and funding reserves to pay future claims to policyholders owning whole life polices. Dividends are not guaranteed, however, some insurance companies have paid them annually to their whole life policyholders for more than 100 years. What are the most common dividend options on whole life insurance policies?

Purchase Paid-Up Additional Insurance – The annual dividend purchases an additional amount of life insurance. The paid-up addition also builds cash value and earns dividends. The cash value and dividends grow income tax-deferred. Paid-up additional insurance typically is the automatic dividend option, unless an alternative is elected. Paid-up additional insurance increases the total death benefit that the beneficiary receives and increases the total cash value the policy owner can either borrow as a loan or receive upon the cash surrender of the policy.

Accumulate at Interest – The annual dividend may remain in the policy to earn interest. The interest earned is taxable to the policy owner annually. The total dividend balance is payable in addition to the face amount of the whole life policy as a death benefit, as well as, being included with the whole life policy guaranteed cash value upon the surrender of the policy.

Premium Reduction – Annual dividends can be applied towards the premium on the policy anniversary to lower the out-of-pocket cost of the policy. The annual dividend may be larger than the annual premium once the policy has been in effect for a number of years eliminating out of pocket premium requirements.

Paid in Cash – Annual dividends can be paid in cash to the policy owner.

Whole life policies eligible for dividends will emphasize that dividends are not guaranteed and policy projections will display illustrated or non-guaranteed projections as well as, the guaranteed projections excluding dividends. Whole life policies provide guaranteed cash values that exist regardless of dividends.

About the author: Ken Buccico holds a LUTC designation and has been in the life insurance business for 39 years. His wealth of experience empowers clients to make best possible decision regarding a life insurance policy. To explore the best  life insurance option, contact Ken at 1-800-651-1953 or KBuccico@Pivot.com