Life Insurance Dividend Checks: What You Need To Know

An annual life insurance dividend check is a yearly payment made by an insurance company to its policyholders. These dividend payments are not guaranteed and are dependent on the company's financial performance, such as investment returns and revenue. The dividend amount can vary based on factors like the insurance company's profits, investment performance, and the money paid into the policy. Policyholders have the option to receive their dividends as cash or use them to purchase additional insurance or reduce premium payments. Life insurance dividends are typically not considered taxable income, as they are seen as a refund of excess premiums paid.

Annual life insurance dividend checks are a return of premiums paid

Annual life insurance dividend checks are a return on premiums paid. They are extra funds returned to policyholders each year, based on the insurer's financial performance. If an insurance company performs better than expected in a given year, it may choose to pay some or all of that money back to its policyholders in the form of dividends.

Dividends are most commonly associated with permanent life insurance and long-term disability income insurance policies. They are typically paid out by mutual insurers, as publicly-traded insurance companies tend to pay dividends to their shareholders instead of policyholders.

The amount of dividends distributed depends on a variety of factors, including the insurance company's profits, investment performance, and the amount of money paid into the policy. Dividends can be received as cash or applied to reduce premium payments or increase the policy's value through the purchase of additional insurance.

While dividends are not guaranteed, some policies offer guaranteed dividends, typically at a higher premium. Dividends can be a great benefit of life insurance, providing extra money that can be used to grow your wealth or cover expenses.

Overall, annual life insurance dividend checks are a return of premiums paid, offering policyholders the opportunity to benefit from the insurer's positive financial performance.

Dividends are paid when a company performs better than expected

Dividends are paid when a life insurance company performs better than expected. This can happen when the company's revenues, investment returns, operating expenses, claims experience (paid claims), and prevailing interest rates exceed expectations. Dividends are a way for the company to share its profits with its policyholders.

The amount of dividends paid out can vary from year to year and is not guaranteed. Several factors determine the dividend amount, including the company's profits, investment performance, and the amount of money paid into the policy. Policyholders can choose to receive their dividends in different ways, such as cash payments, using them to pay for their annual premiums, or increasing the policy's value by purchasing additional insurance.

Dividends are most commonly associated with permanent life insurance and long-term disability income insurance policies. Mutual insurance companies, which are owned by their policyholders, are more likely to pay dividends to their policyholders, while publicly-traded insurance companies tend to pay dividends to their shareholders instead.

It's important to note that dividends are not guaranteed and can fluctuate based on the company's financial performance. Policyholders should carefully consider the credit rating and sustainability of the insurance company to make informed decisions about their expectations of dividends.

Dividends can be paid in cash

You can also leave your dividends in a separate savings account with the insurer, which offers liquidity and convenience. You can withdraw these funds at any time without the need to deposit a check and manage the money yourself, while still saving and earning interest. The interest earned on these dividends may be subject to taxes when you withdraw it.

Taking dividends as cash is similar to dividend payments by stocks to shareholders, where they receive a check for the amount of the dividend due each year.

Dividends can be used to purchase additional insurance

If you have a participating life insurance policy, you may be eligible to receive annual dividend checks from the insurance company. Dividends are a way for the company to share its profits with policyholders. They are not guaranteed, but many companies pay them out annually if the company performs well financially. Now, let's focus on the topic of how "Dividends can be used to purchase additional insurance."

Dividends as a Source for Additional Insurance

One of the benefits of receiving dividends from your life insurance policy is the option to use those funds to purchase additional insurance coverage. This can be a great way to increase your death benefit and provide even more financial protection for your loved ones. When you receive your dividend check, you have the flexibility to decide how you want to use the funds. If you choose to purchase additional insurance, the process is typically straightforward and can often be done without undergoing additional medical exams or providing further evidence of insurability.

How to Use Dividends for Purchasing Additional Coverage

Using dividends to buy extra insurance is a simple process. You can usually inform your insurance company that you want to use your dividend to buy a paid-up addition (PUA) rider, which is also known as a dividend addition option. This rider uses your dividend to buy small amounts of additional permanent life insurance. Over time, these additions can accumulate and provide a meaningful increase in your overall death benefit. The PUA rider is attached to your existing policy, so it grows in cash value over time, just like your base policy. This means that not only are you increasing your death benefit, but you are also adding to the policy's cash value, which can be borrowed against or withdrawn in the future if needed.

Benefits of Using Dividends

Using dividends to purchase additional insurance has several advantages. Firstly, it allows you to increase your insurance coverage without any additional out-of-pocket expenses. Essentially, you are using the profits generated by the insurance company to buy more insurance. This can be particularly beneficial if your health has changed since you originally purchased your policy, as it may be difficult or costly to qualify for additional coverage otherwise. Secondly, by reinvesting your dividends into more life insurance, you are maximizing the death benefit available to your beneficiaries. This can provide added financial security and peace of mind, knowing that your loved ones will be well taken care of in the event of your passing.

Things to Keep in Mind

While using dividends to purchase additional insurance can be a great strategy, there are a few things to keep in mind. Dividends are not guaranteed, so you should not rely solely on them for funding the purchase of additional coverage. Additionally, the amount of the dividend can vary from year to year, so the amount of additional insurance you can purchase may fluctuate. It's important to review your policy and understand the specific rules and options regarding dividends and how they can be used. By staying informed and proactive, you can make the most of your dividends and ensure your life insurance coverage continues to meet your needs and goals.

Dividends can be used to pay off a policy loan

If you have an outstanding policy loan, you can use your dividends to pay all or a portion of your loan. If the dividend is large enough, it can continue to cover the cost of a policy loan indefinitely.

If you have an outstanding loan on your Prudential policy, you may direct your dividends toward repaying the loan.

If you borrowed against your cash value, you could ask the insurer to put the dividends toward your policy loan balance.

Frequently asked questions