Agent Owner, Gilmore Insurance Services, Marysville, Washington State
A life insurance dividend by IRS definition is a "return of overpaid premium" that can occur with mutual companies. Mutual companies are policyholder owned, no stock, no stock holders. What the "dividend" is made up of is a combination of investment returns, death claims not paid and overhead expenses not used above and beyond what the company needs to function and maintain reserves. The IRS considers it excess premium so it allows for it's return to policyholders without taxing it.
Co-Founder, Coastal Financial Partners Group, California
Life insurance policy dividends can be found on policies which "participate" in policy holder dividends which is the divisible surplus of the carrier. These policy dividends are most often associated with participating whole life (par whole life) and can be issued by mutual or stock insurance companies. All mutuals have par policies but only a few stock companies have par whole life in their portfolios.
This "return of premium" is made up of excess investment, mortality, expense and persistency. Dividends are never guaranteed and may be less than projected, especially in times like these where interest rates have fallen and stayed at historic lows.
Life insurance dividends are paid on par life insurance plans. Most par plans are some form of permanent life insurance but term policies can pay dividends as well.
Dividends result from the insurance carrier "overcharging" you so any dividend is considered a return of premium and is normally not subject to taxation.
Agent Owner, Gilmore Insurance Services, Marysville, Washington State
what is a life insurance dividend? Dividends are paid out to whole life policy holders of mutual companies. Mutual companies are policyholder owned, there are no stockholders. Dividends by IRS explaination are a return of unused premium and not subject to income tax. A dividend is made up of three things, investement returns. savings from operating expenses and savings from unused funds set aside for death claims.
A life insurance dividend is a return of unused premium by a participating whole life company. Some detractors of participating whole life say it’s a return of over charged premium. Nevertheless the dividend is approved by the board of the mutual company and has many purchase applications like paid up additions for more death benefit, term riders, premium payments, etc. Dividends can be taken in cash tax free up to basis.
Insurance Adviser - Broker, SC Insurance Services, Oahu, Hawaii
For those insurance providers that have "participating policies", typically mutual insurance companies, dividends are paid to the policy holders. These are based on the performance of the insurance company's investments. With mutual companies policy holders are actually owners in the company although they do not have "voting" shares. So when dividends are declared by the company they are apportioned to the policy holders based on the face value and the cash value accumulated in the policy.
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This "return of premium" is made up of excess investment, mortality, expense and persistency. Dividends are never guaranteed and may be less than projected, especially in times like these where interest rates have fallen and stayed at historic lows.
Dividends result from the insurance carrier "overcharging" you so any dividend is considered a return of premium and is normally not subject to taxation.