By now you should be aware of the fact that life insurance companies pay dividends to the insured. This happens when having a whole life insurance policy that pays dividends. In simple terms, you are investing in the company and they will pay for the realized profits in its portfolio. You should, however, keep in mind this only applies when you are part of participating life insurance policies.
Before choosing dividend options, there are a number of thing you need to be fully aware of. After all, there is no way you can invest your money in something you know nothing about. First and foremost, dividends are not fixed. Of course, this is understandable considering the profits and losses incurred by companies tend to vary. No wonder companies are never going to guarantee dividend in advance.
Rather than rushing into filling the application form, it is highly advisable for you to find out more regarding the company’s dividend-paying history. Does the dividend depend on your policy loan status? If so, you may end up getting less dividends in case of an outstanding loan. Be sure of what you are signing up for before jumping into a conclusion.
Many investors choose to receive their dividend as a cash payment. With this option, the insurance company of choice writes you a check for the dividend every year. The good thing about this option is that you do not have to make do with taxes. Better, there is no restriction on how to use the cash.
Some might wonder why dividends are tax-free. Well, you have to dig deeper into your pockets when having a policy with dividends since you pay a higher premium. For this reason, it is viewed at as a method the insurance company relies on to pay you back for a high premium. So do not be surprised if the dividends received through a participating whole life policy is not tasked.
Be sure to spend some time finding out more about dividend options before choosing one if you are to stand the chance of changing your life for the better.