Dividend Options for Whole Life Insurance Policies

As briefly mentioned in our recent article, Whole Life Insurance, there are various dividend options that range dependent upon policy and carrier. Dividends are not guaranteed and can vary from year to year based on a carrier’s profitability.

How can you use dividends?

  1. Purchase Paid Up Additions. Paid up additions are fully paid up single premium policies that you never pay more premiums on. Paid up additions can have cash values and potentially earn additional dividends. This allows a policyholder to have more death benefit available then initially purchased without any additional cost.
  2. Reduce Premium Payments. By utilizing dividends to increase the policy cash surrender value the policyholder may be able to reduce or offset premium payments in the future.
  3. Paid to You In Cash. By choosing this option the policyholder elects to have the dividend payments disbursed to them annually in cash instead of going to the policy. Consult with your tax professional to discuss the tax consequences of this choice.
  4. Policy Dividends. If you are utilizing a life insurance policy as a supplemental retirement vehicle you may elect to have the dividends paid directly into the policy to accumulate cash value. This option will allow the policyholder to accumulate cash value in the policy much faster based on the preferential tax treatment of the internal cash value build-up and disbursement options.

Buying life insurance is important for those individuals who financially support dependents or other family members. It is also a critical asset to provide necessary liquidity for estate planning purposes. It is important to determine what your life insurance needs are, choose what type of policy will fulfill that need, and determine which life insurance carrier suits your unique situation. Click here to see how HNWLifeInsurance.com can assist you in this process.

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