قالب وردپرس درنا توس
Home / Insurance / Pay for your entire life insurance with insurance dividends • The insurance blog

Pay for your entire life insurance with insurance dividends • The insurance blog



Being the life insurance guy often puts me in a place where I answer questions about dividends. It turns out that many people have a vague understanding that (some) life insurance pays dividends, so we often answer the questions: “ how do you pay for whole life insurance with the help of insurance dividends? ”<! – ->

If this is a question you have often pondered, you will really enjoy what follows.

Participation (dividend that pays) Life insurance

First you have to make sure that the life insurance in question is a participating life insurance. The term that participates is an esoteric insurance-y-term so for the most part you will hear people refer to it simply as a dividend-paying life insurance policy. For reasons that will not improve your quality of life in any way – I assure you – the insurance industry decided decades ago to label insurance products that paid dividends "participating insurance." So whenever you see the term, participating simply think dividend . <! – ->

Dividend-paying full insurance

Next, we must ensure that the life insurance company in question not only pays dividends but that it is the right type of dividend-paying life insurance. That product is dividend-paying full-life insurance .

If the life insurance in question is another type of life insurance – probably life insurance or universal life insurance – then there is unfortunately an extremely small chance that you will pay premiums with dividends. While some of these products are issued with the ability to earn dividends, the amount they earn in dividends is generally small and never enough to pay the full insurance premium (but keep reading if you fall into this category because I think of some other options later which may work for at least some of these other types of life insurance).

Now that we have determined that you have a dividend-paying full life insurance, we can continue with how you go about paying the premium with the dividend. <! – ->

The dividend option for lowering / paying premiums

All dividend-paying whole life insurances allow four dividend alternatives; they are:

  1. Paid in cash
  2. Buy paid supplements
  3. Reduce / pay premium
  4. Accumulate with interest

You may already be able to guess which of the list you want. The option to lower / pay premiums will achieve your goal.

The process is actually extremely simple and straightforward. As an insurance owner, you simply call the insurance company and tell them that you want to change your dividend option to the one who pays your dividend. The customer service staff can handle making this change to your insurance.

Once the change has taken place, you will continue to receive your annual insurance notice and premium in advance, but the insurance company will handle the payment of the premium with your dividend.

There are some critically important notes on how to use this dividend option.

Pay full premiums with dividend checklist

First of all, you must have a dividend paid on the policy that is at least equal to the policy premium amount. If the dividend is less than the premium amount, the insurance company will allow you to pay part of the premium with the dividend, but you are still responsible for the remaining amount that the dividend does not cover.

In both cases, the payment frequency for the policy must be changed to annual. So if you paid the premium every month, you have to change the payment frequency to annual and the dividend will pay the premium annually.

There are some consequences for this to note. <! – – ->

You will save money. Like most other life insurance policies, you pay a little money to pay premiums at a rate more than annually. The insurer makes you cover the presumed lost investment income they receive by not having all the money in advance.

Using the dividend option to pay premiums will require the premium to be paid annually. This is good news, it will eat up less of your dividend as a result of the annual payment savings.

But if your dividend is not large enough to cover the entire premium payment and you instead use the dividend to lower your premium and then cover the remaining amount with your own money then you still have to use the annual payment rate. I would like to use an example to draw your attention to an important consequence of this.

Imagine that you are currently paying a premium of $ 1,020 per month and decide to use your dividend to reduce your premium, which is paid annually to $ 12,000. Your dividend is currently $ 6,000. This means that you must make a payment of $ 6,000 to the insurance to cover the remaining premium and that you cannot spread this over a twelve-month period. <! – ->

In addition, you should understand that most life insurance companies only allow you to make the change required to pay your premium with dividends once a year on the day of insurance. So if you are currently three months into your current insurance year, you will have to wait another nine months before changing the dividend option to use your dividend to pay the premium. [1945906] 19659010] In some cases, the insurer may have a calculated schedule to allow for the change in the middle of the insurance year, but this is not a general practice.

Finally, the dividend may exceed the premium amount (often the case for the elderly throughout life policy). In that case, you must make a secondary dividend option from the remaining dividend options. You are free to choose which one you want, as none of them will affect how you go about paying the premium with the dividend.

Alternatives to Paying Your Premiums with Dividends

You may be in a place where the current dividend on the policy is not large enough to cover the entire premium. You have other options if you do not want or can not pay the premium to be paid for your insurance. <! – ->

Even if the dividend on your insurance is large enough to cover the entire premium due, you may still choose one of these other options. I will not go into a detailed discussion of when you can choose one of these options over the dividend option to pay premiums. Largely because it is often dictated by the circumstances.

Whole Life Cash Surrender

You can choose to transfer cash value throughout the life policy and use it to pay the premium to be paid for your insurance. Agents often refer to this method as an "offset". Functionally, the policyholder submits paid-in supplements and uses the released cash value of the paid-in supplements to pay the premium.

Obs! I specifically mentioned a handover of paid supplements to pay the premium on the insurance. An entire life policyholder cannot give up the guaranteed cash value accumulation of the insurance if he or she chooses to hand over the entire entire insurance. In other words, all cash purchases made with an entire life policy that does not intend to terminate the entire agreement require a refund of paid supplements. If the insurance has no paid-in cash values ​​(ie that only has a guaranteed cash value), a partial transfer is not permitted under any circumstances and therefore a transfer to pay premiums is not permitted. [19659010] The process of submitting paid supplements to pay premiums involves the policyholder instructing the insurance company to do so. Usually some paperwork is required which will often note that handing over paid supplements will lead to loss of outstanding death benefit. This happens to hand over paid supplements for their cash value also means that the policyholder hands over the death benefit in connection with the paid supplements.

The option of handing over cash to pay premiums generally does not require the premium to be paid annually, but I would generally recommend paying premiums below any other frequency and using the handed over cash value to pay them. This will result in a greater than necessary utilization of the insurance's cash value due to the fee that the insurer assesses to pay under other frequencies than annually. tough economic times and do not have the money to pay the monthly premium. In this situation, it may make sense to use a cash transfer to cover premiums and these premiums will be paid on a monthly schedule. The policyholder can also choose to pay premiums with a loan from his insurance. There are two important differences when using a loan versus a transfer.

First, the policyholder can pledge guaranteed cash value as security for the insurance loan, so the difference between guaranteed cash value and cash value created by paid supplements no longer matters.

Second, insurance loans accumulate interest, so these options may not be the best option if there is no plan to eventually repay the loan.

many whole life insurances there is an automatic provision to pay the premium to be paid through a automatic premium loan if the policyholder fails with the premium within the deduction period after the premium's due date. This means that the insurance company will automatically original a loan and pay the premium to be paid without measures required by the policyholder. The industry refers to this feature as an automatic premium loan.

You should note that although this is a standard option for many full life insurance policies, it is not necessarily a standard option for all full life insurance policies so you should check with your insurance company to determine if the automatic premium loan feature is active on your insurance. If not, you can change it by requesting that the insurer do so (generally by phone with a customer service representative).

If an entire life policy is not established for an automatic premium loan, one of the non-forfeiture options will be activated and default is almost always extended term insurance.

Although most loans used to pay premiums are made through the automatic premium loan, there may be some situations where this is not the case. Starting this process requires little more than calling the customer service department and requesting a loan while stating that it is to pay the next premium. In most cases, the insurance company will take care of everything from there.

Using the Reduced Paid-Up Option (RPU)

All full life insurance policies allow an opportunity to reduce the death benefit on the policy and change to paid status. This feature can usually be selected by the policyholder at any time during the existence of the insurance (with a few exceptions which I will address shortly).

Triggering the reduced paid alternative means that the insurer calculates the death benefit that the insurance can guarantee the insured's entire life, taking into account the current cash value accumulated within the insurance. This new life insurance amount (less than the amount at the time of the election) remains in force (guaranteed) with no future premiums required (ie it is paid).

Making the choice to change to lower paid-up status has important consequences. Most importantly, this option is irrevocable. Once a policyholder has changed an entire life policy to paid status, he / she can not later change and reverse the status.

No future premiums are due and no future payments to the insurance can be made (including payments

The policy will be eligible to continue to pay dividends, so cash value and death benefit can grow greater than the values ​​when they reach a reduced payment state. There are several life insurance companies with extensive experience in paying dividends to policyholders, including those with reduced payment insurance policies, but you should always know that dividend payments provide no guarantee.

Some insurers may require the insurance to be valid for a certain number of years before the policyholder can choose to change to reduce the paid status, in which case the policyholder can not select this function until the insurance reaches the required number of active

The entire life insurance dividends offer you options

Close tsen is that owning participating whole life insurance gives you options when paying the premiums in the future. And fortunately, the dividend within the policy is what creates that flexibility for you.

You can let the dividend pay all or part of the premium (at some point), or you can use countless other options such as the automatic premium loan (APL), partial repurchase of cash value, or even exercise the reduced paid option ( RPU). In any case, the dividend within the participating entire life policy that builds the cash value so effectively provides these alternatives to you.


Source link