Life insurance is a contract between you and an insurance company in which the company agrees to pay a sum of money to your beneficiaries upon your death. Life insurance can be used to provide financial security for your loved ones, pay off debts, or cover funeral expenses.
Some life insurance policies offer dividends. Dividends are a portion of the insurance company’s profits that are returned to policyholders. Dividends can be used to reduce the cost of your policy, purchase additional life insurance, or withdraw in cash.
There are several different dividend options available to policyholders. The most common dividend options are:
- Leave as paid-up additions: This option allows you to use your dividends to purchase additional life insurance coverage. The additional coverage is known as paid-up additions. Paid-up additions increase the death benefit of your policy and do not require any additional premiums to be paid.
- Receive in cash: This option allows you to receive your dividends in cash. You can use the cash however you want, such as to pay bills, save for retirement, or invest.
- Purchase additional insurance: This option allows you to use your dividends to purchase additional life insurance coverage. The additional coverage is not considered paid-up additions and will require you to pay premiums in the future.
- Repay a policy loan: If you have a policy loan, you can use your dividends to repay the loan. This can help you to save money on interest.
- Accumulate at interest: This option allows you to leave your dividends in the policy to accumulate at interest. The interest will be added to the death benefit of your policy.
Which dividend option is right for you will depend on your individual needs and financial goals. If you are unsure which option to choose, you should consult with a financial advisor.
Here are some of the benefits of choosing a life insurance policy with dividends:
- Dividends can help to reduce the cost of your policy. If you use your dividends to pay your premiums, you can save money on your overall cost of insurance.
- Dividends can help to increase the death benefit of your policy. If you use your dividends to purchase paid-up additions, you can increase the amount of money that your beneficiaries will receive upon your death.
- Dividends can be used to provide a source of income in retirement. If you withdraw your dividends in cash, you can use the money to supplement your income in retirement.
- Dividends can be used to save for other financial goals. If you leave your dividends in the policy to accumulate at interest, you can use the money to save for other financial goals, such as a down payment on a house or a child’s education.
It is important to note that dividends are not guaranteed. The insurance company may decide to reduce or eliminate dividends in the future. Additionally, the amount of dividends you receive will depend on the performance of the insurance company.
If you are considering a life insurance policy with dividends, be sure to compare plans from different insurance companies to find the best one for your needs. You should also consult with a financial advisor to discuss how a life insurance policy with dividends can fit into your overall financial plan.