What Are Dividend-Paying Life Insurance Policies?

Dividend-paying life insurance policies may just be one of the least understood but most valuable financial planning tools in existence today. However, unlike other recent creations, dividend-paying life insurance policies are not new or exotic. In fact, they have been in existence for nearly 200 years.

Once considered the domain of the powerful and wealthy, the benefits of dividend-paying life insurance policies are now available to everyone. The trick is to understand where they fit into your personal financial portfolio and figure out how to select the right product for your individual insurance needs.

Dividend-paying life insurance policies are available in whole life, universal and variable forms, with funding periods ranging from less than 10 years to death. In addition to the face value or death benefit of the policy, dividend-paying life insurance builds cash value over time. There are also dividends paid on the policy that can be used in the following ways:

  • Increasing the cash value of the policy by reinvesting the dividends
  • Purchasing additional paid-in-full riders that actually increase the face value of the policy
  • Paying the insurance premiums on the policy itself once dividends reach a specified level
  • Providing an additional source of income

How dividends are used is decided by the policyholder and the type of policy purchased.

However, the benefits don’t stop there.

Dividend-paying life insurance policies are typically exempt from lawsuits and even bankruptcy proceedings, although it’s a good idea to check with your state agency first.

They may also provide an excellent alternative to high-cost bank loans. Depending upon the available cash balance, it is often possible to secure a low-interest loan against the insurance policy, then pay back the loan with interest in a method convenient to your specific financial situation.