“Participating life insurance” is a type of life insurance policy that allows policyholders to participate in the insurer’s profits through dividends. These policies are typically whole life policies that not only provide a guaranteed death benefit and cash value accumulation but also offer the potential for annual dividends. The dividends are not guaranteed and depend on the insurance company’s financial performance, including its investment earnings, expenses, and mortality rates.
Key features of participating life insurance include:
Dividends
Policyholders can receive dividends as a return of excess premiums paid into the policy. These dividends can be used in several ways: to reduce future premiums, to purchase additional coverage, to accumulate within the policy as savings with interest, or to be received as cash. Interest earned on dividends left on deposit is taxable each year.
Guaranteed benefits
In addition to the potential for dividends, participating policies also offer guaranteed death benefits and cash value growth, providing a level of security and predictability for policyholders.
Flexible premiums
Although the premiums for participating life insurance policies are typically higher than those for non-participating policies, the ability to use dividends to offset premium payments can effectively lower the out-of-pocket cost for policyholders.
Long-term value
Participating life insurance is designed for long-term financial planning, offering lifelong coverage and the potential for financial growth through dividends, making it suitable for estate planning and wealth transfer strategies.
Ownership and voting rights
Holders of participating policies issued by a federally incorporated insurer, whether a mutual company or a stock company, are entitled to vote at the insurer’s meetings of policyholders (or of shareholders and policyholders), giving them a voice in the company’s governance.