Life insurance dividends?

Question

My father keeps telling me that a good feature of whole life insurance is that after a while the dividends pay the premiums for you.

Are these actually "dividends" or just a return of your own payments? Isn't the insurance part kept separate from the cash value/investment part?

Answer 1

I believe what your father is in reference to is the fact that if you have a paid up @ 65 policy, you pay till 65 then what ever is in the cash value portion pays the premiums of the life insurance.

Those policies are designed so that there is enough in there that it will still grow to the face amount.

Dividends are as everyone above has said.  A return of OVER PAID premium.

In cash surrender value policies, they are tied together.  And in most cases, the higher the CSV, the less the insurance company has to pay.

Answer 2

Your dad must not have his insurance license because if he did, he couldn't make that statement.  Dividends in life insurance are not the same as dividends in the investment world.  They are a return of over-charged premiums.  The dividends that a company issues could be higher, lower, or non-existent year to year.  They cannot be guaranteed by anyone in anyway (sorry dad).

Because life insurance dividend performance relies on the performance and efficiency of one particular company, relying on dividends as part of your plan opens you up to a type of business risk.  I believe that whole life from a mutual company has its place, but dividends, if they happen, should be looked at as gravy.

You might try defining your risks and goals first, and then see what type of coverages fit.  Try talking to multiple insurance brokers to get different perspectives.

Answer 3

There are so many different types of Whole Life Insurance and some that will start paying premiums after a period of time. Your best bet is to talk to a qualified agent to determine what is best for your situation.

Answer 4

Dividends are exactly what the first gentleman described them to be.  There is a product that I would encourage you to look into with the company called New York Life.  It is called Custom Whole Life.  This product guarantees that by a certain age or time period of YOUR choice the policy is paid up and paid for.  So lets say you want to stop premium payments at age 67 (age to receive full SS benefits) you still have a death benefit as well as cash value which in this type of policy the cash value is guaranteed to be more than you have put in if not 2 to 3 times as much plus you have life insurance till death.  Life insurance is a good place to place some safe money in because of the tax free advantages you have when borrowing against your money. Your money grows at a good rate but it is tax deffered growth with tax free withdrawls. You don't pay back this loan it is taken out of your death benefit.  Its a great way to have non-reportable income for later in life.  Besides where do you think taxes will be going in the next few years??  so it would be great to diversify and have something that is paid up with no need to pay taxes on.

Answer 5

Dividends are considered by the IRS to be a return of excess premiums paid.  However, all policies do not pay dividends.  Usually it is only Mutual companies that pay dividends and depending on how you received them, they can increase your death benefit, reduce next years premium or increase your cash value.  Hope this helps.