What to Do With Whole Life Insurance Dividends

MILWAUKEE, March 14, 2023 (Newswire.com) - Northwestern Mutual: Whole life insurance is a type of permanent life insurance. It offers policyholders coverage for their entire lives, and also builds cash value over time. Once the value is large enough, policyholders can even borrow against it. 

Whole life insurance policyholders may also receive dividends from the insurance company. Dividends are payments based on a company's financial results. These dividends are not guaranteed and may change from year to year. However, they can provide additional financial benefit and the policyholder can use them however they see fit.  

So, what can a policyholder do with life insurance dividends? Here are some ideas:

Buy paid up insurance

Policyowners can opt to use dividends to buy additional paid-up life insurance. This means a policy's death benefit and cash value will increase faster than what's guaranteed. In addition, future dividends will be based on the larger policy.

Pay Premiums

A policyowner can opt to have dividends cover the cost of the yearly premium for the policy. Doing so will reduce the amount a policyowner has to pay each year for their insurance. At some point, the dividend may be large enough to cover the entire premium.

Take them as cash

A policyowner can take the dividend each year as cash and spend that money however they please. Some options might include:

Put them in savings

One of the simplest ways to use life insurance dividends is to deposit them in a savings account. This can help the policyholder save for a short-term goal, such as a wedding reception, a child's education, or even starting a business.

Pay off debts

Someone who has high-interest credit card debt can use dividends to help pay down the debt. Doing so could help reduce the amount of interest owed over time, free up some cash flow, and possibly improve a credit score. 

Cover everyday expenses

A policyowner could just use the cash to supplement income at some point using them to cover everyday expenses.

Keep in mind

It's important to understand that whole life insurance dividends are based on the financial performance of the insurance company. This is why the value of the dividends can change from year to year. Dividends are not guaranteed. Policyholders should keep all this in mind when planning how to use their dividends. Speaking with a financial advisor may also help policyholders make an informed decision. 

The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value to supplement retirement income will reduce the death benefit and may affect other aspects of the policy.

Source: Northwestern Mutual