When shopping for life insurance, you have a variety of options to review depending on your needs, lifestyle, and budget. One policy to consider is dividend-paying whole life insurance, which is a type of permanent life insurance that pays dividends to policyholders. These dividends are a portion of the insurance company's profits, and carriers distribute them to policyholders annually.
You can opt to receive these dividends in several ways, such as cash, additional insurance coverage, or a reduction in your premiums, or they can be kept in a savings account within your policy. One benefit of receiving these funds is that they’re not subject to income tax and can be reinvested for potentially higher returns. In this article, we’ll explore how this type of life insurance policy works and discuss ways to use the dividends if you decide this type of coverage is right for you.
How does dividend-paying whole life insurance work?
Before choosing a dividend-paying whole life insurance policy, it’s important to have a clear understanding of how this type of coverage works and how it compares to other common types of coverage. When you purchase a dividend-paying whole life insurance policy, a portion of your premium goes towards the policy's cash value. The insurance company invests these funds, and if their investments perform well, they generate profits.
Insurance carriers can then distribute these profits to policyholders as dividends. The amount of dividends you receive depends on factors such as the policy's value and the insurance company's performance. Keep in mind that these dividends are not guaranteed, and premiums for these policies tend to be higher compared to other types of insurance. Therefore, it's essential to evaluate your financial situation and insurance needs to determine if dividend-paying whole life insurance is a good fit for you.
How to Use Whole Life Insurance Policy Dividends
One advantage of choosing dividend-paying whole life insurance versus another type of permanent life insurance is the opportunity to use the funds in a variety of ways. Here’s a look at how you may use your dividends to add to your financial security:
Cash: You can request to receive the dividend amount in cash or as a check.
Purchase additional insurance: Dividends can be used to buy additional coverage, increasing the policy's death benefit.
Build savings: Policyholders can choose to let the dividends accumulate in a savings account within the policy, earning interest over time.
Pay premiums: Dividends can be used toward the costs of your premium, reducing the out-of-pocket expenses for your policy.
Repay policy loans: If there are outstanding loans against the policy's cash value, dividends can be used to repay those loans.
Since insurance companies can’t guarantee a particular amount of funds, it’s important to consider purchasing this policy alongside other financially savvy choices, including investments and savings accounts.
Let SelectQuote Help You Find the Right Whole Life Insurance Policy
If you’re interested in dividend-paying whole life insurance, SelectQuote can help you navigate your options. We have over 35 years of experience helping people like you make decisions about life insurance, and we will help take your financial goals into consideration as we shop for you. Our licensed, experienced insurance agents make the process quick and easy, doing the quote comparison on your behalf so we can quickly match you with coverage from a highly trusted carrier that’s right for your needs and budget.
