Posted by Unifirst Financials & Tax Advisors

High Dividend-Paying Whole Life Insurance

High Dividend-Paying Whole Life Insurance

A lot of life insurance policies exist, and some insurance policies such as term insurance policies are actually very cheap, but dividend paying whole life insurance offers some very good benefits that policyholders will find very beneficial.

Some of those benefits are:

  • High dividends
  • A death benefit that is guaranteed
  • Premiums which are predictable over a period of time.

What then is high-dividend whole life insurance?

High dividend paying whole life insurance or participating policies refers to the type of life insurance that pays dividend to the policyholders if the insurance company had a very good financial performance.

They are termed participating policy because the customers of the insurance company participate to some extent in enhancing the success of the company.

 A lot of whole life insurance policies give dividend which represents a part of the profits made by the insurance company which the holders of the company’s policy are paid.

The dividends paid to policyholders is not much different from the dividends paid by companies to their shareholders, and the amount that a policyholder gets as dividend will solely depend on the worth of his policy.

For example, if Mr A takes a policy that is worth $100,000, and that policy pays %3 dividend to its policy holders, he will be paid $3,000 per annum. And if he goes on to put in another $10,000 the following year, he will be paid $300 more which now amounts to $3,300 the next year.

Adequate care need to be applied when studying a policy plan before purchase because some whole life insurance dividends may not be guaranteed.

Though whole life insurance policies that has guaranteed dividends comes with high premiums due to the risk that the insurance company faces, and those that the dividends are not guaranteed always comes with low premiums, but the policyholder stands the risk of not receiving any premium for a year.

How Dividends can be Paid in a Whole Life Dividend Paying Policy? 

Policyholder have different options on how they can receive their dividends, though these options varies from one insurance company to the other, but the options that are most common are:

  • Accumulating at a given interest. A policyholder can leave his money with his insurers so that it will yield more interest. The money can be added to your death benefit, or you might withdraw it at anytime.
  • Convert to cash. A policyholder can withdraw his money and spend it as he deems fit. The insurance company might chose to transfer the fund to the policyholder’s account directly or send it in the form of a check.
  • Pay for additional insurance. The policyholder can chose to use his dividend to buy additional high dividend paying whole life insurance. And this is a very good idea because your total cash value would increase, which will in turn increase the dividends you will receive. If your insurance company pays you dividend as of when due, and you diligently apply this option, you will experience a compound increase of your cash value, and your death benefits will increase appreciably.
  • Reduction in premium. A policyholder can chose to put the money that is supposed to be paid to him into his next premium, thereby reducing the amount of money that he needs to pay for premium.

Another very good benefit of dividend paying whole life insurance is that, the internal revenue service doesn’t impose tax on the dividends payments that the policyholder gets from the participating life insurance policy, because the profits are gotten from the policyholders by the insurance companies.

The basic fact is that, the dividend payments are regarded as refunds to the policyholder due to overpayment of his premium.

At this point, the best choice for the policyholder would be to take the check or money and reinvest it into another invest vehicle that has the capacity of earning more income for him.

Dividend whole life insurance policy has a lot of benefits, and the dividend paid by insurance companies can actually be used in a lot of ways, but adequate care should be taken when choosing an insurance policy to know if the dividend is guaranteed, and the plans the insurance company have in handling the income from the dividend.

In order not to make the mistake of choosing the wrong policy, and to know how to effectively reinvest the dividend income it is highly advised to find a tax preparer and an accountant to guide you and offer you a professional advice.


Unifirst Financials & Tax Advisors
Contact This Member