Each of us are looking for ways to increase cash flow. And probably most of us who invest, or at least want to invest, have an idea about where we want to put our money for the best yield. Certain stocks may come to mind or real estate, but have you ever considered investing in dividend paying life insurance?
Dividend paying whole life insurance is one of the few vehicles that maximizes your money, and provides your financial life with wealth building foundations.
It’s an Asset, Not an Investment
Properly built and structured Whole Life Insurance is an asset that mimics an investment. This hybrid characteristic is what makes permanent life insurance so attractive to many people. Life insurance gives policy owners a steady rate of return, can be an inflation hedge, provides a death benefit, and of course yields dividends.
These attributes aren’t the only positives about Whole Life. Whole Life has a cash value that acts as a savings account for many people, or can be used to reinvest in other performing assets.
The wealthy have used Whole Life Insurance for decades because it is more than a safe holding place for money, it’s secure and it builds wealth.
Making the Most of Dividends
Though dividends are not guaranteed, life insurance companies are among the few that have a long history of paying annual dividends to their policy holders. New York Life, for instance, paid dividends during the great depression.
Dividends can be applied to your premium payment as a way to offset your out-of-pocket cost, or it can be rolled back into your policy as a paid-up addition. A paid-up addition is an immediate way to add more cash value and death benefit to your policy.
The IRS does not consider dividends to be earned income, but a return of premium, which means that it will not be taxed. The exception, however, is that your dividend cannot exceed your premium. If it does then it is considered earned income and taxable.
Adding your dividend payout to your premium is just one way to use it, but of course, it can be used in other ways you see fit.
What Determines the Dividend?
There are three factors that determine dividends – mortality rates, corporate expenses, and investment returns. The reason why mutually owned life insurance companies have such reliable distributions year after year, is because their dividends come from multiple streams.
Because Life Insurance is looked at by individuals as just a death benefit, people tend to forget it’s an asset that comes with many living benefits. The qualities of Whole Life like, dividend distribution, market security, liquidity, and rate of return make for even more of a reason to invest in Whole Life.
For more information on how Whole Life can reshape your financial life, visit Infinite 101.
FAQ
Q: What are dividends in the context of whole life insurance, and how do they work?
A: Dividends in whole life insurance are returns of excess premium payments to policyholders. They are typically paid by mutual insurance companies and can be used to increase the policy’s cash value or reduce premiums.
Q: How can policyholders benefit from the dividends received from their whole life insurance policy?
A: Policyholders can use dividends to enhance the policy’s cash value, reduce out-of-pocket premium payments, take them as income, or purchase additional paid-up insurance, depending on their financial goals and needs.
Q: Are dividends guaranteed in whole life insurance policies?
A: Dividends in whole life insurance policies are not guaranteed, as they depend on the financial performance of the insurance company. However, policies from well-established mutual companies have a history of consistently paying dividends.
