Applied To Cash Value Policies
Life Insurance dividends are earned by permanent participating life insurance policies. Let us take the whole life policy as an example. Some whole life policies are non participating policies which mean that they do not participate if the performance is better than anticipated. The premiums for non participating policies are usually lower than those of participating policies. Participating life insurance policies earn dividends.
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When Are Dividends Paid?
As previously explained life insurance dividends are paid on participating life insurance policies. Dividends are not guaranteed but are based on the particular companies experience.
- Whenever the performance of the life insurance company is better than anticipated, assumed or projected the policy owner participates in this good performance. Payment of a life insurance dividend indicates that the life insurance company’s operating expenses, risk selection and management experience has been better than expectations.
- Dividends are paid on a given policy on the policy anniversary the year after which it is earned. It is equal to the difference between the the policy value and the cash value in that year. The value of paid up additions are considered when calculating dividends and they also participate in dividend earnings.The policy value is equal to the guaranteed cash value, plus the gross annual, less mortality and expense charges, plus whatever interest is credited to the policy, minus the guaranteed cash value.
How Can You Use Dividends?
- Many life insurance companies automatically use them to purchase paid up additions if no other option is chosen. Paid up additions are fully paid up single premium policies that you never again pay any more premiums on. These paid up additions have cash values and also earn additional dividends if the company declares any.
- You can use your life insurance dividends to reduce the premiums of your participating whole life insurance policy. Over a period of years the reduction can be considerable making premium payments for a policy you have had for years easier to handle.
- You can have your dividends paid to you in cash. If you should choose this option the life insurance company will send you a check each year.
- Dividends can be left to accumulate interest. Many people like this dividend option as the amount you receive after 10 years, 15 years, or 20 years can be considerable. Added to your cash value life insurance dividends if left to accumulate could put a large sum of money in your hands. Of course the amount depends on the size of the policy you own.
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