Life Insurance Dividends and Ultra Strategy: Part Two

Life Insurance Dividends Part twoWith a stock company, the owners of the company are the shareholders and those shareholders, being entitled to a portion of the company’s profits, may receive a dividend, based on the board’s decision to pay. The shareholders and the customers/policyholders are usually not the same, resulting in the potential for a large conflict of interest. This conflict has been the result of many a DNF in the financial world as corporate management faces questions like: Whom do we serve, shareholders or the customers? As pressure mounts, and it always does in these situations, the decision to pay shareholders what shareholders feel they deserve comes with added pressure and is often hastened. As a result, management naturally starts focusing on the quarterly return and thinking short term. At this point, management can begin to behave like a child who just received his or her allowance money. It starts burning a hole in their pocket. History is ripe with stories of customers and corporate culture being short-changed due to this inherent conflict of interest.

In a participating mutual company, the management works for the policyholders’ benefit. Dividends are paid to the policyholders instead of shareholders so no conflict exists. Management is responsible to “guard the safe” if you will, and they act in a consistently conservative manner, doing exactly what they are expected. Without the pressure of shareholders, they can take a long-term vantage point in the decisions and be calm amidst the storms. By virtue of the way they are set up, it would be completely unethical for management of a mutual company to take unnecessary risk to drive profits. Those of us receiving dividends as policy owners of mutual companies know who has our best interest in mind. We cheer for their successes and obviously want them to be profitable. But we also realize that it would be completely unrealistic to expect them to be conservative with our money and then anticipate high returns, just like it would have been impractical of me to think I could run my first ultra-marathon in eight hours.

Being able to think long term gave me the ability to pace myself during the race, exactly the way I’d planned. Knowing I had liquidity in terms of hydration, backup support and fuel assets, provided me a feeling of calm in the midst of the storm. When I got to the, “What the HECK am I doing?” stage, when things hurt and it was easy to doubt myself, I had an anchor that put everything into perspective. I had put in enough training miles prior to race day and as a result, was able to blow through the doubt and keep moving. I knew I could make it. And… when others around me were hurting, rather than causing doubt or concern, I was able to turn that observation into motivation. Dividend paying whole life insurance is no different. Just because times are bad for everyone else doesn’t mean you can’t get ahead, and a mutual company that provides good purchasing opportunities could give you that chance.

The value gained by my experience running continues to serve me in many different ways today. It is always there to draw on in the event I need the strength, and I often “reinvest” it in new experiences. Similarly, your whole life insurance dividends can also be reinvested when you purchase paid-up additions and add to your cash value. They can be taken as cash if you elect and can pay your premiums, if you decide. Either way, they will always be tax-free because the IRS considered them to be a return of premium and after-tax dollars.

My experiences have taught me that being able to think long term and stay disciplined creates tremendous advantages in both running and in personal finance. Though it isn’t always painless, having a long-term vision locked on the objective, a sound, conservative strategy of economic certainty, and a team aligned to it, is, in my opinion, the only way to run the race.

Sean Fleming

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