Reader’s Question:

When do life insurance companies distribute dividends to policy holders?

Sean

Buffalo, NY

If you have a participating whole life insurance policy, your policy earns dividends. Dividends are not the same as those stockholders. Dividends are considered as a return of premiums and are not guaranteed. These are distributed by life insurance company since they do not have stockholders. Excess in earnings are distributed to participating policy owners.

There are different factors that determine whether the life insurance companies will distribute dividends. One of these is when the death claims is less than what is anticipated. When the operating costs are lower than projected, savings is generated. A higher actual investment earnings than projected can also results in distribution of dividends. Higher investment earnings occur when the earnings is higher than the amount needed for a guaranteed death benefit reserves and other contractual agreements.

There are many benefits of dividends. You can use this to reduce your premiums or to buy paid up additions where you purchase an additional life insurance policy that is the same type as your base life insurance policy. You can also allow the dividends to accumulate interest based on the interest rate that the life insurance company is paying on that period. You can also receive the dividends in cash form.