A dividend is money some whole life policies pay back to you when the company does better than expected. It is not guaranteed.
Only participating policies pay dividends. These are often sold by mutual companies, which are owned by their policyholders.
The NAIC says a dividend is really a refund of part of your premium. It is paid when the company collects more than it needs for claims and reserves.
Dividends are not promised. Illinois says they may change every year.
You can usually pick how to use them. Common choices are cash, lower premiums, leaving them to earn interest, or buying more paid up coverage.
Interest earned on dividends left with the company may be taxed. Kansas notes this.
- Take it in cash
- Lower your premium
- Leave it to earn interest
- Buy more paid up coverage
- Buy 1 year term coverage
More questions
Do term policies pay dividends?
Almost never. Dividends come with participating whole life.
Are dividends guaranteed?
No. Past dividends do not promise future ones.
Are dividends taxed?
Interest earned on dividends left with the company may be taxed. Ask a tax pro about your policy.
Words to know
- Dividend
- Money a company may pay back when it collects more than it needs. You only get dividends with a participating policy, and they are not guaranteed.
- Premium
- The amount you pay an insurance company for your policy.
- Whole life
- Permanent insurance that lasts your whole life as long as you pay. Premiums, death benefit, and cash value are guaranteed.
