Reader’s Question:

How will I earn dividends from a whole life insurance policy?

Jason

Wilmington, DE

You will be subjected to dividends if the whole life insurance policy you have is a participating life insurance policy. Not all whole life insurance policies are participating policies. This means that this type of policy does not participate in the performance of the investment and is thus not subject to dividends. In this case, non participating policies usually have lower premiums that those of participating policies.

However, dividends are not guaranteed. Like what was mentioned, dividends are based on the experience of the company. If the company performed better than what is anticipated, it means that the life insurance companies’ risk selection, operating expenses and management selection were better than expected. A policy owner of a participating whole life insurance policy receives the dividends. Dividend is equal to the difference of policy value and cash value for that period. When calculating the dividends, paid up additions are also considered. These also play a part in the dividends earnings. Dividends are distributed a year after it was earned.

Tags: whole life insurance