What kind of insurance would best suit you? The answer depends on what you want out of your policy, as well as other factors such as your age, whether you have a partner or spouse, and whether you have children.
For some people, whole life insurance, which offers a range of benefits over term life insurance, is a great option. And if you choose to buy whole life insurance, then you can take advantage of features such as policyholder dividends. Whole life insurance policies that offer dividends are also known as participating life insurance.
How does participating life insurance work?
Participating life insurance policies are whole life policies that include a feature called dividends. When you pay your premiums for a participating life policy, a portion is deposited into an interest-bearing, tax-deferred account. These funds appreciate in value, generating a cash surplus that can be returned to you as dividends. If you receive dividends from your policy, the money is tax-free (up to the amount that you paid in premiums), because it is considered a return of premiums you have previously paid.
One important thing to note about dividends is that you won't receive the same amount of dividends in each year, and in some years you may receive none at all. This is because the amount of dividends you receive from a participating life insurance policy depends on the rate of return on the money you have invested. Even so, a participating life insurance policy is an excellent option, with the benefits of whole life insurance, as well as the occasional extra cash dividend!
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