Looking for a way to keep your family financially protected for the future? Life insurance products with participating policies provide regular dividends that can help you make long-term plans and financially prepare for the future. Other types of life insurance products can provide death benefits that will provide assistance in the event of the policyholder's death, but participating policies have dividends you can use right away.
But what exactly is a participating life insurance policy, and how can it benefit you? As you explore your life insurance options, understanding participating life insurance policies and the dividends from these contracts can help inform your decision.**
The goal of all life insurance policies is to help keep the policyholder and their family financially secure in a variety of ways. Participating life insurance policies, however, pay dividends to the policyholder throughout the span of that policy, meaning they add a bit of financial security during one’s lifetime.**
With this kind of life insurance policy, a portion of your premium is invested in a mutual fund, where you can receive dividends. Many policyholders use participating life insurance as a means to save for retirement or other long-term financial goals. It’s important to remember that dividends from participating policies are not guaranteed, and these dividend amounts are dependent on the performance of the insurance provider which may change between payments.
By investing in mutual funds through a participating life insurance policy, you will be sharing some of the risk that the insurance company holds. As a result, you will also share the benefits that the insurance company receives due to their performance that fiscal year, which in turn impacts the dividend amount. When policyholders are given their cash dividends, the amount will be a percentage of the life insurance policy value according to the investment performance. So, if your policy has a value of $100,000 and the dividend for that fiscal year is 0.5%, you can expect a dividend amount of $500. In this way, the insurance company is sharing a portion of their profits with their participating policyowners.
Perhaps the biggest difference between participating and non-participating life insurance policies are the dividends.** With a participating policy, dividends are typically paid out annually and allow the policyholder to share some of the profits of the insurance provider. While non-participating policies don’t have dividends, they may have other associated benefits, such as death benefits or maturity benefits.
The other major difference between the two types of policies are the premium amounts. Participating policies tend to be whole life insurance policies, which can have a larger premium amount compared to term policies. Term policies, which are classified as non-participating life insurance policies, have quite low premiums but that coverage expires after a set amount of time, typically 10, 20, or 30 years.
Dividends from life insurance policies are returns of a portion of the premium payments that are included with participating policies.** As premium payments are submitted, they are invested on behalf of the insurance company. Depending on the performance of these investments, the returned dividend amount may fluctuate year after year, but policyholders can still expect regular payments as long as the insurance company is continuously performing well.
There are several ways policyholders choose to use their dividends. Some like to use these payments toward their premiums while others might want immediate cash value. Depending on the policyholder’s needs, there are a few options for their dividends.
If you are looking to plan ahead, participating life insurance policies can offer financial security for the future. You may choose to allow the insurance company to keep the dividend in a dividend accumulation account where it can earn interest overtime.
From this account, money can be taken out whenever you want. If the policyholder passes before the money is withdrawn, the account balance is added to the face value of the insurance and distributed to the beneficiaries identified in the policy.
The monthly premium payments for participating life insurance policies tend to be larger than non-participating policies because a portion of that money is being invested. However, you can reduce the premium amount by selecting to have the dividends automatically distributed into future premium payments.
Depending on the performance of the initial investment and how large the dividend is, you can greatly reduce premiums overtime. In some cases, when insurance companies are performing exceptionally well, the dividend amount might even be enough to cover the premium expense entirely, so policyholders won’t need to pay out of pocket.
Policyholders have the option to receive cash payments from their dividends. With this selection, you can receive a check in the mail and use it toward other expenses. After the check is received, it is entirely up to you to decide what to do with it, such as daily expenses or paying loans. In this way, dividends provide flexibility and security for policyholders.
Using the dividend, policyholders can purchase an additional life rider for their life insurance. These are additional features or coverage amounts which might not be included in your insurance contract but can help you prepare for upcoming life events. Since life riders can be added to policies at an additional fee, the dividends from a participating policy can help cover some of these costs.
Dividends from participating life insurance policies provide substantial long-term benefits, but this isn’t a suitable option for all policyholders. Many people are seeking insurance policies with low premiums, which can come with term and non-participating policies. Although they have higher premiums, participating policies can help you contribute to a long-term plan where the shared profits can help you lower your premiums, save, or even cover other costs, in the future.
While it may take some time to see this benefit come to fruition, you can see lower premiums as a result of whole or participating life insurance policies. Additionally, these policy options are ideal for families looking for extra income streams before the policy has ended. If you are in a position to pay large premium amounts up front, then participating contracts can provide significant long-term benefits for you and your family.
Participating policies for whole life insurance provides an array of financial benefits in the long-run. As the premium payments are invested into the insurance company, you and your family can reap the benefits of the company’s performance.
If you are interested in participating life insurance policies, ELCO Mutual is here to answer any questions you might have. To learn more about life insurance products with cash dividends, speak to an independent agent from ELCO today!
**Please note that ELCO Mutual does not guarantee dividends from participating life insurance policies. We encourage you to reach out to your insurance agent for additional information.