Participating Life Insurance - Everything You Need to Know
What Is Participating Life Insurance?Get your free quote
Participating life insurance is a type of permanent life insurance policy that provides lifelong coverage and cash value accumulation.
Unlike other types of life insurance, participating life insurance pays dividends to eligible policyholders as a way to reward them for staying with the insurer for an extended period of time.
These dividends are based on the insurer’s investment performance, meaning they can be unpredictable from year to year.
Insurance protection for your whole life
Everybody needs life insurance since it provides financial protection and peace of mind in the event of death or disability.
Participating whole life insurance is especially useful because it can provide financial security and stability over a long period of time – even your entire lifetime. This makes participating whole life one of the best tools available for estate planning and hedging against financial losses due to death or disability.
When should I get a participating whole life insurance policy?
When it comes to deciding when you should get a participating whole life policy, there’s no one-size-fits-all answer; it depends on your personal objectives and situation.
Generally speaking, you should consider getting a policy when you start earning an income, you get married or enter into a committed relationship, become a parent, buy real estate, or receive an inheritance.
It’s also important to note that premiums tend to be lower if you purchase your policy at a younger age due to better health ratings, so if possible try to buy sooner rather than later. Lastly, keep in mind that once you have your policy, it's important to review it regularly and make sure it is meeting all your needs with appropriate coverage amounts and premium payments.
Participating Policies vs. Non-Participating Policies
Participating policies and non-participating policies are two of the most commonly discussed types of coverage. Participating policies offer policyholders the potential to receive dividends from their insurance company based on the insurer’s performance.
Non-participating policies do not provide this opportunity, as they are not tied to any investments or changes in the insurer’s financial position.
What dividends options are available?
One of the most popular dividend options for participating policy holders is a “cash dividend option” which allows policyholders to receive a lump sum payment at the end of each year that is determined by how well the insurer performed during that year.
Alternatively, policyholders may opt for a “dividend accumulation account” which allows them to reinvest their dividends into their policy or apply them towards premium payments without paying any taxes on them.
Understanding the cash value of Participating life insurance
It's important to understand how cash values can be affected when selecting a participating life insurance policy.
The cash value of a participating policy will typically grow based on both premium payments as well as any dividends accumulated over time.
This means that a participating policy can potentially be more attractive than one that does not offer dividends if the insured is able to accumulate sufficient dividends over time and take advantage of the investment opportunities offered through this type of coverage.
In some cases, it can even result in an income stream for those who no longer need highly liquid funds by taking loan advances against their cash value balance. Understanding these complexities can help you determine if a participating life insurance policy is right for you and your family's needs and risk profiles.