Even though dividends are not guaranteed, one of the perks of specific whole life insurance policies is that they can provide policyholders with dividends. However, specific participating insurance policies do provide this as a benefit to policyholders when the company performs better than anticipated. Dividends are often connected with stock ownership. You can use it in several ways, some of which may be preferable to others based on your circumstances. The dividends from whole life insurance policies are often not subject to taxation because they are treated as repayments of premiums. Payments are typically made on the policy’s anniversary. Let’s consider your possibilities before deciding what to do with your dividends.
1. Take Dividends as cash: This option allows policyholders to receive the life insurance dividend amount in cash rather than reinvesting it into the policy or purchasing additional coverage. In addition, by taking the dividend in cash, policyholders can use the money for various purposes, such as repaying credit card debt, boosting emergency savings, or contributing to a vacation fund.
2. Additional Purchase Coverage: Policyholders can use dividends to purchase additional coverage, such as term life insurance, which can provide additional protection for their loved ones. Policyholders with significant changes in their lives may be interested in this option. For instance, having a child, buying a new house, or wanting to ensure their loved ones are cared for financially upon their demise.
3. Reduce premium payments: Policyholders can use dividends to reduce their premium payments, which can help to lower the overall cost of the policy. This might be a practical choice for policyholders in times of financial difficulty or looking to cut back on discretionary spending. Policyholders can retain their coverage, continue to enjoy the policy’s cash value and death benefit, and lessen the financial burden of paying for it by using profits to lower premium payments.
4. Reinvest dividends into the policy: This option enables policyholders to purchase additional paid-up insurance, which increases the policy’s death benefit and cash value. Paid-up insurance is a life insurance policy for which no more premium payments are required beyond a particular point. By using dividends to purchase additional paid-up insurance, policyholders can increase the policy’s death benefit and cash value. In addition, policyholders may choose to enhance their policy’s face value to better safeguard their loved ones financially in the case of their death.
As you can see, there are a variety of ways that you can put whole life insurance earnings. However, the best one will depend on the specific circumstances of each policyholder. You can adjust your dividend spending plan annually based on your needs and circumstances.
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M. Dutton and Associates is a full-service financial firm. We have been in business for over 30 years serving our community. Through comprehensive objective driven planning, we provide you with the research, analysis, and available options needed to guide you in implementing a sound plan for your retirement. We are committed to helping you achieve your goals. Visit us at MarvinDutton.com . Tel. 212-951-7376: email: [email protected]