Whole Life Insurance pays dividends not interest. The dividends are referred to as accumulated cash value. There are interest sensitive or current assumption life policies that pay interest on the cash value instead of dividends. These types of policies combine Whole life and Universal life. There are advantages and disadvantages of the two types of insurance. It all depends on the purpose of the insurance; whether it is used for a death benefit or being used as a savings vehicle.
Renwanz Insurance & Financial Solutions, Carlsbad, CA
A participating whole life insurance policy pays annual dividends. The dividends represent the favorable performance of the insurance company and are the result of excess earnings investments, favorable mortality rates and savings on expenses.
Dividends can be paid in cash, used to offset your premiums, or used to purchase additional paid up insurance which will increase your policy's face value.
The premium you pay to the insurance company is generally divided in three different ways. First, there is the actual "cost of insurance". The cost of insurance is a specific charge associated with the death benefit that takes into consideration your age and "rating" when the policy was originally issued. Another portion of your premium covers operating costs and company profits. The final portion is put into the cash value of your policy.
Another type of life insurance that will last your entire life is called Indexed Universal Life (IUL). An IUL is permanent life insurance that offers a death benefit and your premiums may earn interest and grow the cash value of the policy. What makes an IUL different from whole life is the way interest is credited to the policy's cash value. IUL's offer the ability to earn interest that is linked to the movement of a selected stock index over a specific period of time.
With an IUL, your money is not participating directly in the stock market. If the referenced market index drops in value, you simply do not have interest credited for that year.
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Dividends can be paid in cash, used to offset your premiums, or used to purchase additional paid up insurance which will increase your policy's face value.
The premium you pay to the insurance company is generally divided in three different ways. First, there is the actual "cost of insurance". The cost of insurance is a specific charge associated with the death benefit that takes into consideration your age and "rating" when the policy was originally issued. Another portion of your premium covers operating costs and company profits. The final portion is put into the cash value of your policy.
Another type of life insurance that will last your entire life is called Indexed Universal Life (IUL). An IUL is permanent life insurance that offers a death benefit and your premiums may earn interest and grow the cash value of the policy. What makes an IUL different from whole life is the way interest is credited to the policy's cash value. IUL's offer the ability to earn interest that is linked to the movement of a selected stock index over a specific period of time.
With an IUL, your money is not participating directly in the stock market. If the referenced market index drops in value, you simply do not have interest credited for that year.
The dividends count as interest growth in layman's terms. It's usually about 5% on average for the life of the policy with an A rated company.
In the industry there is a guaranteed rate of 4% that agents flip out during meetings and webinars.
Ask the agent to show you the IRR report.