What are life insurance dividends?

Posted on:
August 14, 2012

Many life insurance providers advertise dividends in order to promote their life insurance policies – especially whole life policies. It all sounds well and good, but most people don’t fully understand what dividends are. There are different types and options of dividends, but in most basic terms, a dividend (at least when it comes to life insurance) is a refund which is payed out to the holder of the life insurance policy. It’s a refund because it’s usually paid from the excess premiums.

Dividend payouts are possible because the policy holder’s premium calculations are made under the life insurance providers actual monetary claims – which often makes the premium calculation less optimistic than it happens to turn out. Life insurance dividends are usually payed out periodically – either in cash or in stock. The policy holder can choose to take their dividends, or to leave them in a special savings account. The latter case is usually referred as dividend accumulation.

Dividends are one of the more useful additional benefits of life insurance, and it’s usually preferable that your life insurance provider offers the option. However, as in most financial questions, the situation is really not that simple and straight forward. Apart from the general, vague idea of what dividends are, most life insurance policy holders really don’t have an idea about the many different dividend options and benefits that might be available to them.

There are several different types of dividends. Two of the most relevant from a life insurance policy perspective are:

Additional term life insurance (AKA fifth dividend option/additional insurance option)

Additional term life insurance (or fifth dividend, or additional insurance option as it’s commonly referred as) is a dividend option that allows the life insurance policy holder to use the value of dividends to purchase additional term life insurance coverage.

Automatic life insurance dividend option

This life insurance option applies if the owner of the life insurance policy didn’t previously specify another dividend option. In the majority of cases, the automatic life insurance dividend option that ends up used most often is the paid up additional insurance.

Obviously, the above list was somewhat shortened and simplified for the sake of brevity. We hope that the fact that it’s to the point and brief makes it that much easier to read and understand and useful. Most data available on life insurance tends to be long winded and hard to read, especially when it comes to advanced options such are dividends, and hopefully this article will be able to help you to select the right life insurance policy or manage your existing one more efficiently. While most life insurance policy holders are primarily interested in providing some level of safety and financial security for their loved ones after they are gone, there’s nothing wrong with making a bit of money in the process – if nothing else, you can use it as a buffer to help with unforeseen situations. Understanding the function and importance of dividends will hopefully help you to feel that much more comfortable and at ease.

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Posted on:
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Posted on:
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Posted on:
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Posted on:
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Posted on:
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Posted on:
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Posted on:
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Posted on:
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Posted on:
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