Quick answer: Life insurance dividends are payments some insurance companies may make to owners of participating whole life policies. They usually come from the company doing better than it planned, such as having lower costs or better investment results. Dividends are not guaranteed. If one is paid, you can often take it as cash, use it to lower your premium, leave it with the company to earn interest, or buy paid up additions that add to your coverage and cash value.
Dividends come up a lot when people learn about whole life insurance and infinite banking. Here is what they are and what they are not.
Which Policies Pay Dividends?
Dividends are tied to participating whole life policies. These are often sold by mutual insurance companies, which are owned by their policyholders. Term life policies do not pay dividends. Some whole life policies are non participating and do not pay them either.
If you are new to whole life, our page on what cash value life insurance is covers the basics, and our page on whole life vs term life insurance compares the two.
Where Dividends Come From
Insurance companies set prices with careful, cautious guesses about costs, claims, and investment returns. When actual results turn out better than those guesses, the company may return part of the difference to participating policy owners as a dividend. The company’s board decides each year whether to pay one and how much.
Dividends Are Not Guaranteed
This is the most important point. A company may have a long history of paying dividends, but past payments do not promise future ones. Dividend rates can go up or down. Any illustration that shows future dividends is an estimate, not a promise.
Common Ways to Use Dividends
| Option | What Happens |
|---|---|
| Take cash | The company sends you the money |
| Reduce premium | The dividend pays part of your premium |
| Leave on deposit | The company holds it and may pay interest |
| Buy paid up additions | It buys small amounts of extra paid up coverage |
| Repay a policy loan | It can be used toward a loan balance, if allowed |
Options vary by company and policy, so read your contract.
Dividends and Paid Up Additions
Many people who use whole life for infinite banking choose to have dividends buy paid up additions. Paid up additions add to both the death benefit and the cash value, and they may earn dividends of their own in later years. Our page on what paid up additions are explains how they work.
Are Dividends Taxable?
The tax rules can be complex. In many cases, dividends on a life insurance policy are treated as a return of premium and are not taxed until they go over what you paid in, but there are exceptions. Ask a tax professional about your own situation.
Questions to Ask About Dividends
- Is this policy participating?
- What dividend options can I choose, and can I change them later?
- What does the illustration show at the guaranteed values, with no dividends?
- How has the company handled dividends over time?
- How strong is the company?
Talk to a Licensed Agent
I am licensed in life and health insurance in a number of states, and I can usually get licensed in a new state quickly if needed. I am happy to walk through how dividends and policy options work. Nothing on this page is a promise of any result. Every policy is different, so read the illustration and contract carefully.
You can also join our free Cash Flow Association community on Skool at skool.com/cashflowassociation to learn more about cash flow, infinite banking, and money basics with other members.
The Bottom Line
Life insurance dividends are possible payments to owners of participating whole life policies when a company does better than it planned. They are not guaranteed. You can often take them as cash, lower your premium, leave them on deposit, or buy paid up additions. Look at the guaranteed numbers and ask good questions before you buy.
Keep Reading on This Site
- What Are Paid Up Additions? A Plain English Guide for Whole Life Policy Owners
- How Does a Policy Loan Work? A Plain English Guide to Borrowing From Whole Life Insurance
- How to Build an Emergency Fund: 7 Simple Steps to Get Started
- Insurance and Infinite Banking
- Insurance and Own Your Bank Guide
Frequently Asked Questions
What are life insurance dividends?
They are payments some companies may make to owners of participating whole life policies when results are better than planned.
Are life insurance dividends guaranteed?
No. Dividends are not guaranteed and can go up or down.
Does term life insurance pay dividends?
No. Dividends are tied to participating whole life policies.
What can I do with life insurance dividends?
Common choices are taking cash, lowering your premium, leaving them on deposit, or buying paid up additions.