Life insurance is a very beneficial thing to have. The main point of life insurance is to receive a lump sum of money to give to beneficiaries at the time of one’s death.
The insurance company gives this lump sum to beneficiaries, so long as the deceased has paid all of their premiums.
Life insurance comes in many different forms. The range of life insurance types helps to assist people in all different situations.
Some policies are cheaper, some last longer, and others have investing options. No matter what option is chosen, this kind of protection is a very smart choice.
There are two main types of life insurance: Term Life and Permanent.
Permanent life insurance comes in a few different policies, including whole life, variable life, and universal life.
A life insurance policy that is participating, means that the insured shares in some of the profits of the insurance company.
The most well-known policy that has this option is the whole life policy. This policy pays dividends.
A dividend is a small portion of a company’s profits. Furthermore, this small portion pays policyholders as if they own a portion of the company.
There are a number of things that policyholders can do with their dividends:
• Cash Them Out: The insurer will write a check for the dividends earned.
• Save Them: Dividends left in the company earn interest over time.
• Add on Insurance: People can use the cash for extra insurance.
• Premium Reduction: Cash amount is used to reduce premiums.
Why are Dividends Offered?
Some companies offer dividends, in order to attract investors to their company.
This kind of offering also tells people that the company feels good about their success in the future. This kind of confidence can bring in more investors based on the company’s potential.
Businesses choose not to pay dividends for a number of reasons. One of the main reasons is that the company is new, and they want to invest their earnings back into their company.
Things to Know
People who are thinking about life insurance with dividends will benefit from keeping a few things in mind:
• Dividends can change
Not every participating policy is guaranteed. It is ideal to expect the value of dividends to change, as a reflection of the company’s profits.
Those who are seeking a guaranteed dividend can expect their premiums to be higher. Otherwise, they may go up and down over time.
• The company matters
People who are looking for a participating policy will benefit from shopping around. Not all insurance companies are made the same, and the performance of the company can make a big difference.
The higher a company’s rating, the better the chances are that they will be able to pay the projected dividends. At first glance the ratings may not be a big deal; however, choosing to go with second-best may result in a much different payout.
• Dividends are based on cash value
For the most part, companies calculate dividends based on a policy’s cash value.
The longer a person waits, the more their cash value and dividends will be worth. As with many things in the insurance world, it takes time and patience to see the benefits.
• Participating Policies are Expensive
Participating policies are generally one of the most expensive forms of life insurance. They are more expensive than non-participating policies and exceptionally more pricey than term life options.
How are, Life Insurance Dividends Taxed?
The dividends that are earned from a life insurance policy cannot be taxed by the IRS. Generally speaking, dividends from life insurance are not traditional dividends.
Although they do come from the profit of a company, that profit came from the insured person. The IRS looks at these funds as refunds, from overpaying on premiums.
If the number of dividends exceeds the price of the premium paid, then a person may have to pay taxes on them. If that is not the case, then dividends usually are not taxable.
Whole Life Insurance Dividend Rates
Most insurance companies in Canada offer participating policy life insurance options. Rates differ from company to company, however, and it’s ideal to shop around.
While some companies will have fluctuating dividends, paying a higher price can help to ensure they maintain their worth.
Those looking for insurance with investment opportunities should shop around and stay on top of changes. New businesses may change their dividend policies, numbers may fluctuate, etc.
Policyholders with participating insurance will benefit from staying on top of their insurance and how well it’s working for them.
Every kind of life insurance is a smart investment for the future. For those who choose to go with a participating option, there are some modest benefits that can be extremely beneficial over time.
For those people who are trying to decide on the policy that is best for them, it can be helpful to consider a few things:
• Coverage needs at the present: How much is needed now? How much will be needed later?
• Current health and habits: Maintaining a healthy lifestyle is a huge benefit to lower premiums.
• Age: The younger a person is, the better their chances of getting better quotes.
• Future needs: Those who are thinking about having a family, buying a home or starting a business should consider these factors. Having an idea of what will need protection in the future is a huge part of picking the right coverage.
Those who are willing to pay higher premiums and who are interested in long-term growth will certainly benefit from considering life insurance with dividends.