Life Insurance Dividends (Terms Explained)

Life insurance dividends are a return on your annual premium payment. Unlike dividends on stock market investments, life insurance dividends are not taxable and can be used in a variety of ways.

You may already receive an annual dividend check from your insurer if you have whole life insurance. Policyholders can also apply dividends to their monthly rates or leave it in a savings account to gain interest.

This guide covers all your options regarding life insurance dividends, including how much you’re eligible to earn with different types of life insurance.

Understanding Life Insurance Dividends

Permanent life insurance pays dividends when a company performs better financially than anticipated. Your company will return any unused premiums in the form of life insurance dividends, and how much you receive depends on the size of your policy and your annual rates. 

You must have whole life or another type of permanent policy to earn dividends, as only cash value life insurance is eligible for returns like these. 

How My Life Insurance Dividend is Calculated

Every year, you pay an annual premium for life insurance. Insurance companies then subtract the annual cost of claims and business operations. Anything leftover is divided among policyholders as a life insurance dividend.

Most companies offer a dividend rate of 3%-6% on annual premiums. At the lowest rate, you can earn up to $1,500 annually on a $50,000 policy.

Policyholders must remember that dividends are not guaranteed. You only earn dividends if the insurer performs well, and most companies won’t guarantee dividends due to the risk. If you want guaranteed life insurance dividends, be prepared to pay higher rates.

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How to Use Life Insurance Dividends

Like other elements of cash value life insurance, you can access your dividends at any time and use them in the following ways: 

• Cash: The insurance company will send a check or direct deposit annual dividend earnings into the bank account associated with your policy.
• Life insurance payments: Policyholders can apply dividends to life insurance payments and lower their monthly rates.
• Supplemental coverage: Use dividends to buy supplemental life insurance or prepay for additional coverage on a policy.
• Savings account: Keep life insurance dividends in an account with your insurance company to accrue interest.

Dividend options vary by company, so review your policy closely to determine how to best use yours.

Fortunately, even if you surrender life insurance, the dividend account is added to the surrender value. Learn more in our guide to cash value vs. surrender value.

Guaranteed Life Insurance Dividends

Since companies generally offer a 3% rate on life insurance dividends, this table shows how much you can earn on different policies. 

Some companies have a higher rate. For example, according to Cision PR Newswire, Guardian Life recently increased its dividend rate to 5.75%. This is why it’s important to compare multiple companies. 

Guardian Life ranks among our best life insurance companies, but you may find a different insurer better fits your lifestyle. Scroll down to compare insurance companies or enter your ZIP code above to find local companies offering whole life insurance dividends.

Life Insurance Companies with the Best Dividends

Companies with the best dividends will have a 5% rate or higher. However, rates change annually based on performance, so look at A.M. Best and other third-party rankings for life insurance dividends history and long-term financial strength.

The following national insurers have a “Superior” A.M. Best rating of A++ and a steady dividend rate of at least 5%:

• Guardian Life
• MassMutual
• New York Life
• PennMutual

Read our Penn Mutual life insurance review or explore other whole life insurance companies and policy options to find the best life insurance near you.

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Types of Life Insurance Policies Over Dividends

Since only permanent policies have insurance dividends, this table compares monthly whole life insurance rates by age and policy limit. Read more about how much life insurance costs.

In this example, a 30-year-old policyholder who pays $103 per month for $100,000 in coverage could earn up to $3,000 in annual life insurance dividends, more than double their annual rates. 

However, these rates are considerably higher than term life, so read term life insurance vs. whole life insurance to find the most affordable policy for you.

Case Studies: Life Insurance Dividends

Case Study 1: Understanding Life Insurance Dividends

We will explore the concept of life insurance dividends and how they provide a partial return of the premiums paid by policyholders. We will discuss the average annual dividend for a $50,000 life insurance policy and explain the eligibility criteria for receiving dividends.

The case study will also delve into the different ways policyholders can use their dividends, such as receiving a check, applying them to monthly rates, or accumulating them in a savings account.

Case Study 2: How My Life Insurance Dividend is Calculated

The calculation of life insurance dividends. We will explain how insurance companies determine the amount of dividends policyholders receive based on the company’s financial performance and the size of the policy and annual rates.

The study will highlight the dividend rate range typically offered by insurers and emphasize that dividends are not guaranteed, as they depend on the company’s performance.

Case Study 3: Types of Life Insurance Policies Over Dividends

We will discuss the types of life insurance policies that are eligible for dividends. Specifically, we will focus on permanent life insurance policies, such as whole life insurance, that have cash value components.

The study will compare the monthly rates for whole life insurance by age and policy limit, highlighting the potential dividends policyholders can earn based on their premiums. It will also emphasize the importance of comparing different insurance companies to find the best return on investment.

Everything You Need to Know on Life Insurance Dividends

Life insurance dividends are a return you earn on any unused premium payments. Only whole life insurance earns dividends, so your monthly rates will likely be higher depending on how much coverage you need.

Generally, you can earn $1,500 per year on a $50,000 policy, but dividends increase if you have a more expensive policy or choose a company with a higher rate. Most companies offer 3%, but some can offer 6% or more if it performs well.

Compare local life insurance companies to find the best return on your investment. Use our comparison tool above to get started. 

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