Non-Participating vs. Dividend Paying Whole Life Insurance

It’s more than a little unusual to think about death, but if you were to pass away today, would your spouse, children, and any other loved ones be financially secured?

Some people avoid the subject of death so strongly that they neglect to prepare for a “what if” situation.

• What if you were to die?
• Could your family keep their home?
• Would your loved ones become burdened with bills they couldn’t pay?

Preparing for these situations is an important component of complete financial security. Planning for death is taking a step towards a more secure future. Once you’ve decided to begin the life insurance conversation, you have a few decisions to make.

What type of life insurance coverage do I buy? Do I purchase a whole life insurance policy or a term life insurance policy?

If I go with a term life insurance policy, how long of a term length should I get? 10, 15, 20, or 30 years?

Or would it make more sense to choose something permanent such as a dividend-paying whole life insurance policy or a non-participating whole life insurance policy?

When you finally have your answer to all of these questions, you’ll also have to decide on an insurance company that will provide the actual life insurance protection.

Below, we help you break down the differences and choose the policy that’s right for you.

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Term Life Insurance

Term life insurance is one of the most popular types of life policies. This is because it’s also one of the most cost-effective especially for families that have other expenses to worry about.

Your insurance premium (the amount you pay for your policy) is a fixed rate. This means it will never fluctuate.

You’ll know exactly what to pay each month and can budget for the expense.

If you take out a term life policy through your employer, you may have even more options. Some employers allow you to have the premium taken out of your paycheck.

This stability makes term policies attractive to younger people. They’re also helpful for those with a limited income.

However, you should be aware that term policies only last for a predetermined amount of time, or “term.”

Policies come in various allotments of time, generally ranging from 5, 10, 15, 20, or 30 years. When this period is up, the guaranteed rate terminates.

For this reason, term life insurance is sometimes referred to as “temporary insurance.” After your policy term policy terminates, you can choose to renew it.

Often, your premium may increase or fluctuate upon renewal. This is because term life policies base premiums on your health and age. The older you become, the higher your risk of death.

The insurance company takes on that risk, and so your premium rises. There’s no time like the present to begin shopping for new life insurance.

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Whole Life Insurance

As the name implies, whole life coverage stays in effect for your entire lifespan. This type of policy is costlier per month than the average term life insurance policy.

That price comes with a benefit. Whole life insurance policies stay one fixed price from that first-day coverage is purchased.

Unlike a term policy, your whole life insurance policy will never expire or fluctuate in price. The premium doesn’t increase as you age or as your health declines.

Whole life policies are also the best kind of piggy bank or forced savings account. They come with the great benefit of having a cash value account that will grow throughout the policy’s life.

The money that your policy will gain over time can also be borrowed from in the form of a policy loan when needed. Whether it’s for a downpayment for a new car, home, child’s education, or an emergency, your policy will have readily available cash savings accounts to draw upon.

The cash value account also grows tax-free. The only time that you may be required to pay taxes is if you surrender the policy, and the total cash value is greater than the total amount of premiums paid to the life insurance company. If this occurs, the taxable portion is based only on the gains.

Whole life policies are also not subject to collection by creditors in many states across the US. This makes them a great safety net in case you go into debt in the future.

Similarly, some states protect the cash value of your policy even if you file for bankruptcy.

Is a Whole Life or Term Life Policy Right For You?

Can you afford the upfront cost? If so, whole life insurance affords you more options and flexibility. The policies let you access and use your money in ways that you can’t with term life insurance.

If you find these policies too cost-prohibitive, then it’s in your best interest to have a term life policy.

At the very least, you’ll have protection for the duration of the policy. You can always add a rider or roll your policy over into a permanent policy when your finances become more flexible.

However, if you like the cash value feature that a whole life insurance policy can offer, you’ll also want to learn more about dividends and how they can further enhance the overall benefits of whole life insurance.

Let’s delve into the inner workings of dividend-paying whole life insurance.

Dividend Paying Whole Life Insurance

Dividend paying whole life insurance policies are sometimes referred to as a “with-profits policy.” Dividends are a small part of a company’s overall profits shared with its shareholders or policyholders.

Dividends are usually paid quarterly, though some are paid yearly. With a dividend paying whole life insurance policy, the company buys stock by investing a portion of its policyholder’s premiums.

If the insurance company does well in the stock market, it will pay you dividends on the premium. If the insurance company does poorly, you are not affected, and dividends will not be paid out.

These policies carry a shallow margin of risk as you can never lose your capital. This is because established companies know how to manage their portfolios. They have a vested interest in turning a profit.

This makes them a more secure source of dividend paying because these corporations are longstanding. The fact that they’re more established means that they’re more reliable. This is the primary benefit of a dividend paying life insurance policy.

You should be aware that dividends aren’t guaranteed, and, generally, they’re paid out by larger corporations. If you’re eligible for these types of policies, it’s in your best interest to take them, especially if your goal is to find a life insurance policy that can accrue cash value build-up.

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What Can I Do With Dividends?

Most insurance companies will give you three options for your dividend paying policy:

1. Apply the dividends toward your current policy premium to reduce your out-of-pocket cost.
2. Take the cash value of the dividends.
3. Reinvest the dividends.

The wisest course of action is to reinvest the dividends. A Dividend Reinvestment Plan, or DRIP, can reinvest your dividends for you. This ensures you’ll never forget to reinvest or make excuses to put it off.

Remember, every moment your money isn’t reinvested, it isn’t accruing any interest. If your money isn’t reinvested, it isn’t working for you.

Choosing to reinvest will allow you to gain more wealth than through a typical bank account. This is because interest rates on traditional bank accounts remain low.

How Non-Participating Life Insurance Differs from Participating Plans

Non-Participating life insurance policies do not pay dividends.

Knowing this, you may be wondering why people would choose a non-participating policy.

The answer is simple.

A non participating whole life insurance policy will still offer:

• Permanent Life Insurance Coverage
• Fixed Premium Payment
• Guaranteed Scheduled Cash Values
• Cheaper than Dividend Paying Whole Life Insurance

Making Your Decision

Okay, so you know you want a life insurance policy. Now you need to decide if it’ll be a term life insurance policy, a non-participating whole life insurance policy, or a dividend paying whole life insurance policy.

The good news is that we can make your decision a bit easier as we represent several of the top whole life insurance companies and term life insurance companies.

It helps to think about your financial future.

Do you plan to make any big future purchases such as a car or home?

If you are, you should consider a dividend paying policy. You can borrow against it for your mortgage or lease.

You could also rely on the funds accrued from your policy to help with the cost of your new purchase.

Lastly, the potential cash value earnings from a dividend paying whole life insurance policy can be used as an additional source of income come retirement.

Can you afford a whole life policy?

If the cost of a whole life policy is too steep, then you may not be eligible for a policy that pays dividends.

In that case, it’s best to take a term policy so that you have some form of coverage.

Whole life insurance is best when purchased in you are younger.

TIP:
If you have young children or grandkids, consider buying a whole life insurance policy for them now as the cash values will be much greater in their adult years. Also, the policy will be much more affordable now than later.

3 Ways to Get a Dividend Paying Whole Life Insurance Policy

Have you decided that a dividend paying whole life insurance policy is for you? Here are a few different ways to go about getting one:

Start A New Policy: If you don’t yet have life insurance, give us a call or send us a message. Together, you can come up with a life insurance plan that’s custom-fit to you.

Roll It Over: If you do already have life insurance with some cash values earnings, you can request to roll your policy over. This request may not take effect until your renewal date, so make sure to ask when it’ll begin and when you’ll receive your first payout of dividends.

Add a Rider: Insurance riders are additional changes added to a traditional life insurance policy. Insurance riders are as unique as you are. They can be added to include your children under your life insurance coverage or to cover your family in case of accidental death. Ask us about your options.

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Need Help Choosing?

Remember: in the end, any life insurance policy is better than no life insurance policy.

It’s a safety net that can let you and your family breathe easy.

You’ll know that your loved ones won’t be in a poor financial situation during an emotionally trying time.

That kind of protection is priceless.

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Looking to compare life insurance policies? We can help. Enter your ZIP code to get free quotes from multiple insurers.

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