Whole Life Insurance Dividend Options
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- Опубликовано: 9 ноя 2024
- #wholelifeinsurance #lifeinsurance #lifeinsurancepolicy
Whole life insurance comes with an array of dividend options you can choose that will direct the insurance company's payment of an annual dividend.
Traditionally, whole life policies have four options. These options are available on almost every whole life policy in existence so if you own or are considering a whole life insurance policy purchase, there's a very good chance that you have these options available to you. The four traditional options are:
1. Paid in Cash
2. Reduce/Pay Premium
3. Purchase Paid-up Additions
4. Accumulate at Interest
Dividend Option Paid in Cash
The option to take the dividend in cash is pretty straightforward. This is a cash payment from the insurance company that comes to the policyholder in the form of a check. The policyholder can take this cash payment and do with it whatever he/she wishes.
But this cash payment does have some important tax benefits. The payment of a cash dividend is a refund of premiums paid in the eyes of U.S. Tax Law. This means that most dividend payments made in cash are not taxable to the policyholder hold.
This options does reduce the cost basis of the whole life policy, however, so this could make future withdrawals from the whole life policy taxable sooner than originally anticipated.
Also, if cash dividends equal all premiums paid, the cost basis in the policy is gone and any future dividend received as cash will be taxable to the policyholder.
Dividend Option Reduce/Pay Premium
This options uses the dividend to pay all or (if the dividend is less than the entire premium due) some of the premium due.
This option can reduce the money the policyholder has to pay each year to the life insurance company to keep his or her policy in force.
There are a couple of key understandings about this dividend option.
First, you must change the premium payment frequency to annual if you do not already pay the premium annually.
Second dividends do fluctuate so having a dividend that covers your entire premium this year does not guarantee that it will cover your entire premium next year or for all years moving forward. You might end up with a smaller dividend in the future that could require you to pay whatever portion of the premium the smaller dividend does not cover.
Third, this dividend option might require you to choose a secondary dividend option. This is a very good thing because it means that the dividend is larger than the premium due and you have money left over. The insurance company needs to know what you want it to do with the excess dividend money so you get to choose from the remaining dividend options what to do with the remaining money.
Dividend Option to Purchase Paid-up Additions
This option takes the dividend and purchases mini whole life policies that attach to your original whole life policy.
These mini policies also earn dividends that can purchase additional mini whole life policies.
This is an incredible option to compound the cash value accumulation feature of whole life insurance. In fact, it's the best option you can choose if you want to maximize the cash value build up of your whole life insurance policy.
Dividend Option Accumulate at Interest
This options takes the dividend payment and places it in an interest bearing account that functions somewhat similarly to a savings account.
The cash dividend goes into the account and earns whatever the annually declared interest rate is on the balance.
But there are some unique implications to this option that you should understand.
First, this is not generally an FDIC insured account, so there is a difference between this and the savings account you have at your local bank.
Second, only dividends can go into this account. You do not have the option to place additional money into the account. You can, however, withdraw the money anytime that you want to.
Third, you cannot take a loan against the value of this account. Life insurance policy loans are only available against cash value inside the life insurance policy. These accounts are separate from the whole life policy and as such you are not allowed to take a policy loan against them.
Lastly the interest earned on these accounts is taxable in the year that you earn the interest. Life insurance cash value accumulate tax deferred (Please Note: in the video I misspoke and said that cash value accumulates tax free, this is not technically correct).
The tax deferral of life insurance cash values means you do not owe taxes on the growth in the year that the growth occurred provided the cash remains inside the life insurance policy. The interest bearing account works differently (much like a savings account) and you will receive a 1099 for all interest earned in the year you earned it from the life insurer.
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Yep I'm going with Paid Up Additions. The money grows far better with it than anything else.
Very informative! TY!😃
If I use dividend to pay premium, do I have to pay tax on it? Or is it a wash out, because paying the same premium and getting the same dividend at the same time? Thank you
It's a wash
I have NY life and it has DOT ( dividend options term)rider. I have a question. Will term expire after certain time? I know Cost of that rider going up every year.
Yes generally these riders do have an expiry date. You can find that information in your policy. NYL customer service would also be able to answer this.
yessir
10 years
Ok
So I can use dividend to pay for my premiums?
Yes
Passport I swear I got the best lawyers I got lawyers like Lil Boosie n*****
V.
Pay $5,000.00 a year in premiums and receive $150 in dividends........garbage.
This example seems oddly specific to something.
@@SmartRetirementIncome Dividends are nothing but "overpayments" as described by the IRS.