Whole Life Insurance Dividend Option

Premium Reduction of Your Whole Life Insurance

Other Articles in the Dividend Option Series

• Paid Up Additions
• Cash on Deposit
• Enhanced Coverage Option

In the first two articles in this series have discussed the Enhanced Coverage Option and Paid Up Additions. Another very popular dividend option for whole life insurance is the premium reduction or premium offset option. It is actually a very simple concept. After the policy has been if force for one year, you begin to earn a dividend each year on the anniversary of your policy. These dividends are used to reduce your cost of insurance for the following year.

Since the dividend is paid out only once per year, this option works best if you are paying for your whole life insurance premium annually vs monthly. With a monthly pre-authorized checking plan, you would have to adjust your monthly premium downwards each year, which would require contacting the insurance company or your insurance broker/agent to make the change. You would also have to have your new monthly premium calculated beforehand. With an annual premium payment, the dividend would reduce your annual premium bill being mailed out to you and you would submit a cheque for the balance owing.

Once your dividends have risen to be greater than your initial or first year premium, you are no longer required to pay for the policy. You have the option then to leave the dividends on deposit inside the whole life insurance policy, but most insurance companies illustrate the plan assuming you would receive the excess dividend as a cash payout at that point. If you are getting the excess dividend paying you out, this is where your whole life insurance policy becomes a cash asset to you, and creates an ongoing income stream for the rest of your life. With many whole life insurance policies this increasing dividend can be very high, and can easily repay you all the premiums you put into the plan in the early years. This means you not only have bought and own the original death benefit, but have created a growing annuity or income stream for the rest of your life.

This option is for people who are looking to buy just a certain amount of life insurance. They don’t need a growing policy to keep up with inflation. They are also looking for future income from the plan vs an investment type product. If this is the type of plan that would suit your needs, we can show you how to build and design such a whole life insurance policy with a reducing premium.

There is one important consideration here. When you are buying a Premium Reduction whole life insurance policy, you are buying the full face value of life insurance as high cost whole life coverage. This means the premium in the early years will be high, but coming down rapidly. The full amount of whole life insurance you buy will be eligible for dividends from day one, so your dividend scale will start high and grow from there as your policy matures. Be aware that to start this plan will require a significant investment in the early years, but this plan will rapidly come down in cost over the first 15 to 20 years. Very often these plans are paying money back to you before the 20th anniversary of the policy. So, if you are 40 years old today, by about age 60 you would have a life insurance policy that is bought and paid for and is now paying you income for the rest of your life! In fact it can be an excellent future income and estate plan.

Canada Life, for instance, has been running their whole life dividend paying life insurance plan for 144 years and has averaged an annual dividend of 7.5% over the last 50 years. They have the most profitable dividend scale and have policies that pay out excellent income once the premium is reduced to $0.

Whole Life Insurance Advice from Life Guard Insurance

The premium reduction dividend option is a very popular choice for people buying whole life insurance. If you want to see your premium disappear and own your whole life insurance without future payments, especially into retirement, this is the dividend option for you.

Feel free to contact Life Guard Insurance if you would like more information about how this type of whole life insurance plan could work for you.

The article was written by +Mitch Reynolds. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about premium reduction dividend option for whole life insurance would be very much appreciated.

Related posts:

1. Whole Life Insurance: Paid Up Additions
2. Whole Life Insurance: Enhanced Coverage Option