Dividends - MiniOne of the primary features of a mutual life insurance company is that they operate for the benefit of their participating policy owners – not stockholders. As a result, mutual companies are making decisions today with the long-term interest of policy owners in mind. The mutual structure is the foundation of the financial strength of these companies, and is the main reason that they are some of the only companies that have been profitable for over 100 years.

Another key benefit of owning a policy with a mutual company is that the policy owner, you, are eligible to receive dividends based on the profitability of the insurance company. Let’s explore the nature of these dividends.

There are three factors that affect the dividend paid to policy owners:

1. Mortality rates

2. Corporate expenses

3. Investment returns

Because there are multiple streams feeding your dividend, dividends from mutual companies have a strong and stable history. In fact, there are many mutual companies that have paid dividends for well over 100 years now.

Dividends can be distributed in many different ways, depending upon your financial goals and needs. They can be sent to you in the form of a check, or they can be used to help offset your premiums. They can even be rolled back into the policy and purchase additional “Paid Up Addition” insurance, which not only increases the amount of your death benefit but also increases your cash values. This can, actually, be considered as a “life benefit.

Another important feature is that dividends receive special tax treatment. Dividends paid to participating policy owners are considered a return of premium and are, therefore, not considered income by the IRS. This is true up to the point you have received dividends payments in excess of your contributions or tax basis. Until your reach that point, and dividends you take in cash are not reportable to the IRA and are not taxable.

In summary, purchasing a whole life policy from a mutual life insurance company is a financial strategy that you might want to consider.

Noah Kelsch