Understanding Dividends

Whole life insurance policies from mutual companies may earn annual policy dividends. These aren’t guaranteed, but they reflect the company’s performance and can provide significant value through multiple options that align with your business and personal financial strategies.

Business Owner Perspective

For profitable businesses with strong cash flow, whole life dividends offer a tax-advantaged way to grow wealth outside of traditional business reinvestment. This strategy creates diversified wealth that can support both personal financial goals and business opportunities.

How Dividends Are Determined

Dividends are based on several factors:

• Premium Income - Policyholder payments
• Investment Results - Portfolio performance
• Mortality Changes - Actual vs expected claims
• Expense Management - Operational efficiency
• Reserve Changes - Financial strength adjustments

Dividend Options for Business Owners

Cash Payment

Description: Direct payment to you for immediate use

Business Application: Supplement business cash flow during slower periods

Premium Reduction

Description: Lowers your annual policy premium

Business Application: Reduce insurance expenses, freeing up capital for operations

Paid-Up Additions

Description: Buys additional life insurance coverage

Business Application: Increase key person or buy-sell agreement coverage

Internal Paid-Up Option

Description: Helps pay off the base policy early

Business Application: Accelerate wealth building and reduce ongoing premiums

Loan Repayment

Description: Offsets existing policy loans

Business Application: Maintain policy performance while using cash value for business

Historical Dividend Performance

While dividends are not guaranteed, many mutual companies have a long history of paying dividends:

• 2000-2002: 7.75%
• 2010-2015: 5.75%
• 2022-2023: 4.00%

Important: Dividends are not guaranteed and may change based on market and company conditions. Past performance does not guarantee future results.

Strategic Business Applications

Cash Flow Supplementation

Use dividend cash payments to supplement business cash flow during seasonal downturns or economic challenges.

Benefits:

• Provides predictable additional income stream
• Tax-advantaged compared to other investments
• Can fund business opportunities or emergencies

Wealth Accumulation

Use paid-up additions to systematically build wealth outside of your business operations.

Benefits:

• Diversifies wealth beyond business assets
• Compounds tax-deferred growth
• Creates legacy wealth for succession planning

Integration with Overall Financial Strategy

Business Growth Phase

Use cash dividends to fund expansion opportunities or maintain operations during growth investments.

Wealth Building Phase

Direct dividends to paid-up additions for accelerated wealth accumulation outside the business.

Succession Planning Phase

Leverage accumulated cash value and paid-up additions to fund buy-sell agreements or key person coverage.

Key Considerations

• Dividends are not guaranteed
• Dividend rates can change annually
• Options should align with business and personal goals
• Tax implications vary by dividend option chosen
• Coordination with overall financial strategy is essential

Disclaimer

This article is for educational purposes only and does not constitute financial, investment, or insurance advice. Consult licensed financial advisors and insurance professionals to understand how dividends work with your specific policy and company.