Types of Whole Life Insurance
Participating Whole Life Insurance Dividends, fixed payments, fixed death benefits. This type of whole life insurance pays dividends into the cash value of the policy when the issuing life insurance company makes a profit. These dividends come from the company’s excess investment earnings and are usually not guaranteed. But they can increase the overall return you receive from the policy. Participating policies are most commonly issued by “mutual” life insurance companies, which are owned by the policyholders instead of being publicly traded. The dividends that are paid to policyholders are not classified as taxable income (unlike dividends that are paid from stocks). Instead, this form of income is generally considered to be partial repayment of the premiums that were paid and therefore a tax-free return of principal. Life insurance dividends may be paid directly to the policyholders in cash, or they may be used to reduce premium payments. They can also be used to purchase additional ...