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.
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.
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:
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.