Are you a life insurance policyholder? If not, experts advise taking up whole-life insurance as an alternative to limited-term policies. Generally, while term policies are the cheapest life insurance form, whole-life insurance offers a wide range of benefits.
What We'll Cover
- What is a Dividend?—Understanding Life Insurance Dividends
- How Do Dividends Work on Life Insurance?
- What to Do with Life Insurance Dividends
- Should You Purchase Dividend-Paying Life Insurance?
- Which Life Insurance Companies Pay Dividends?
- The Guardian Life Insurance Company of America
- American United Life (AUL)
- Foresters Financials
- MassMutual Financial Group
- Lafayette Life Insurance Company
- Mutual Trust Life Insurance Company
- Minnesota Life Insurance Company
- Northwestern Mutual
- Are Life Insurance Dividends Taxable?
- Which is the Best Dividend-Paying Life Insurance Company?
Did you know that whole life insurance policies can pay you dividends regularly to help you manage the cost of insurance? Additional benefits for being a whole-life insurance policyholder include guaranteed death benefits and predictable premiums as time goes by.
However, not every insurance provider has the luxury of paying dividends to policyholders. This article highlights some of the best life insurance providers that pay dividends.
What is a Dividend?—Understanding Life Insurance Dividends
Most top reputable life insurance companies share their profits with participating policyholders via dividends. A perfect example is Guardian Life Insurance Company of America, which recently announced its dividend payout—a record $1.13 billion payment—the highest in its 16-decade history.
Essentially, a dividend is a return of a portion of the insurance premium paid on your insurance policy. A life insurance policy dividend is similar to traditional investment dividends in several ways.
The dividends represent a share of the company's profit. Therefore, a well-designed whole-life insurance policy that pays dividends focusing on cash value growth is an ideal investment vehicle to create wealth and leave a legacy.
How Do Dividends Work on Life Insurance?
A dividend is considered a return on a premium. How do insurance companies calculate dividends? Understanding the typical dividend calculation is key to understanding how life insurance policy dividends work.
You pay an annual premium for the policy when buying whole life insurance. Each year, a premium is added to your policy, and it becomes cash value. This is money you can access at your convenience during your lifetime—once the insurance costs and expenses are cleared.
Once the provider adds the premium to your cash value, they subtract the expenses to pay claims and operate the business. Subsequently, interest is credited depending on the guaranteed rate. A dividend is then generated if the insurer's experience is better than assumed for expenses, investments, and claims.
What to Do with Life Insurance Dividends
As a policyholder, you have several options for using dividends generated. These include:
- Check or cash. You can request your insurer to send the dividend in cash or check if you have other unrelated financial goals, such as purchasing a car.
- Premium deduction. You can also request your insurer to put the dividends towards your forthcoming premiums. This makes your regular payments easier.
- Buy a new policy. Alternatively, you can use the dividend to buy extra insurance or prepay on your policy.
- Savings. You can also choose to keep the dividend amount with the insurer to earn interest on the amount.
Withdrawing dividends from life insurance policies can help you take care of emergencies such as medical bills.
Should You Purchase Dividend-Paying Life Insurance?
Buying a whole life insurance policy paying dividends can help you maximize your policy benefits. However, you should be ready and willing to pay the associated high premiums. Dividends can help you get cash in case of emergencies. In addition, dividends can help you cover premium payments as well as get coverage that a non-participating policy won't offer.
A whole life insurance policy is ideal for individuals seeking an extra investment account since some people don't need whole life insurance. Regardless, it is a highly recommended alternative to limited-term policies.
Are you ready to shop for dividend-paying life insurance policies? Read further to check out the top 10 best whole life insurance providers that pay dividends.
Which Life Insurance Companies Pay Dividends?
Below are the top recommended picks of companies paying dividends to their policyholders.
The Guardian Life Insurance Company of America
Guardian Life provides reliable insurance coverage for its customers in over 50 states. Despite offering relatively standard-term life policies, it has a range of whole and universal life plans with attractive features. The insurance company has been paying out dividends since 1868 and recently broke the record with the highest payout.
Besides their commitment to treat life insurance as assets, Guardian Life promotes a kind of infinite banking strategy among its investments. The company claims it will base dividends for qualifying policyholders on a 5.6% dividend interest rate.
American United Life (AUL)
As a founding member of OneAmerica mutual group, this company offers term and whole life coverage options. It offers coverage in all states except for New York. While the company doesn't guarantee dividends, AUL generally offers dividends to whole life policyholders.
Perks of purchasing whole-life insurance with AUL include standard premiums and a standard death benefit. It also offers a guaranteed issue life coverage.
Foresters Financials offers a participating no medical exam whole life insurance policy. The insurance provider has a guaranteed insurability rider option. For over a decade and a half, Forester's dividend interest rate has ranged from 5.5% to 6.23%, with 2020 being the record lowest since the company started paying out dividends.
Founded in 1887, Ameritas is a direct recognition life insurance provider with a solid reputation in the infinite banking sector. Ameritas offers its customers wealth-building strategies that focus on customer cash accumulation. In addition, it is a mutual company focused on steady growth and has a strong track record of paying dividends to its customers.
MassMutual Financial Group
MassMutual is a top-ranking insurance company known for being an expert in several sectors such as wealth building and cash value accumulation. The company also ranks high when considering the best dividend-paying life insurance companies.
Benefits and features of buying whole life insurance from MassMutual include guaranteed death benefits, building cash value over time, and the opportunity to earn dividends. MassMutual has been issuing dividends since 1989 with an average of 6.40% rate and estimated $1.85 billion dividend payouts in 2022.
Lafayette Life Insurance Company
Founded in 1905, Lafayette is a non-direct recognition insurance company known for its impressive track record of performance and sound business. The company's board of directors previously chose to hold the company's dividend rate at 5.65% for 2020. In addition, as of January 2021, Lafayette expected $1.05 billion in dividend payouts.
Mutual Trust Life Insurance Company
Mutual Trust is a top mutual company that offers participating life insurance to its clients. For more than 100 years, Mutual Trust has been offering dividends on its participating life insurance. The company has no shareholders, meaning it is owned by the policyholders. As such, the company chooses to share a portion of its profits with policyholders in the form of dividends.
Minnesota Life Insurance Company
Minnesota Life is a Securian affiliate, and it offers two major whole life policies. The first policy is focused majorly on death benefit protection while the other is focused on cash value growth. In addition, the company offers participating whole life insurance and has a reliable reputation and history of paying out dividends. Though the company hasn't publicized its dividend history, Minnesota Life almost guarantees cash value that grows at a fixed interest rate for minimal risks.
PennMutual is a direct recognition company with a favorable whole life policy and an exceptional track record of cash accumulation policy performance. PennMutual ranks highly among the top insurance companies with innovative rider options. The recently issued permanent policy features a living benefit chronic illness rider, which allows your death benefits to be accelerated and helps you take care of long-term care services.
PennMutual rivals other companies when comparing the history of paying out dividends. The company's dividend rate ranged between 6.34% to 6.10% between 2009-2020. However, in 2022, the dividend interest rate is set at 5.75%, with an expected $123 million in dividend payouts to qualifying policyholders.
This is one of the top-rated life insurance companies in the United States. The company is dedicated to maintaining financial strength despite the hurdles. In addition, Northwestern Mutual has a solid track of dividend payouts owing to its 2021 $6.5 billion dividend payout with a 5% interest rate. The company is also committed to superb excellent service and client satisfaction, thus being a reliable life insurance company.
Are Life Insurance Dividends Taxable?
Life insurance dividends are untaxed since they are considered a return of premium. Since the dividends are paid when the insurance company has a financial surplus, the Internal Revenue Service views a cash/check payout as a refund of the excess premium you paid to the insurer. The dividends are not taxed if you receive the payout in cash or apply it to your policy.
Conversely, if the dividend amount you receive is greater than the premium amount you paid into your policy, the IRS taxes the extra amount as income. In addition, if you leave the dividends with the insurance company to earn interest, then the interest is also taxed as income.
Which is the Best Dividend-Paying Life Insurance Company?
Ultimately, the best choice boils down to different factors such as premium rates and additional perks. Additional factors include dividend-paying whole life insurance pros and cons, which differ from company to company. It is important to note that not all insurers pay out dividends. Therefore, ensure you consult with your financial advisor or an insurance agent to recommend the best insurance policies that pay dividends to policy owners and so that you can understand how life insurance dividends affect cost basis.