Adding Life Insurance with Dividends

The dividend earned with a whole life insurance policy can be used to purchase additional life insurance.

Under this option the dividend is applied as a single premium at the insured’s attained age to purchase paid-up insurance of the same type as the basic policy. There are two basic advantages to this option:

• The paid-up insurance is usually purchased at net rates (i.e., there are no overhead or commission expenses), and both the amount of insurance and the cash value increase yearly (which reduces the effects of inflation).
• The insured is also able to buy more insurance without having to demonstrate insurability. This can be especially attractive option if the insured has  health conditions.

One-year term insurance

Dividends under many policies can be used to purchase one-year term insurance under one of the two plans: the dividend can be applied as a net single premium to buy as much one-year term insurance as possible at the insured’s attained age or an amount of one-year term insurance equal to the surrender value of the policy, the remainder being accumulated at interest. This option yields the largest amount of insurance protection.

Summary

1. Every life insurance contract is either one or more of the following types of life insurance: term, whole life, endowment, and annuity.

2. Term insurance is temporary insurance, has no surrender value, and requires fewer premium dollars per $1,000 of face value than other types of life insurance.

3. Whole-life insurance is the most economic form of cash value insurance. The cash value increases over time until it equals the face value at age 100 and can be borrowed against at any time or taken if the policy is surrendered.

4. Endowment insurance is a temporary form of cash value insurance which pays the face value of the contract at maturity whether the insured lives or dies. Its cash value is higher at any given time than any other form of insurance, and its premium is higher for any given face amount.

5. The annuity systematically liquidates an estate to prevent its exhaustion before the death of the annuitant.

6. Annuities may be purchased with a single premium to begin immediately or by annual premiums to begin at a future time; they may cover more than one life although they commonly cover only one; they may pay a fixed monthly payment or a variable one; they may pay for the life of the annuitant either with or without a guaranteed minimum number of payments or pay for a predetermined number of years regardless of the life or death of the annuitant.

7. Commonly used life insurance policies which are a combination of more than one of the above-mentioned types of contracts are the family policy, the family income policy, the retirement income policy, the modified-life policy, and the return of premium policy.

8. Settlement options common in life insurance policies include the following:

• Lump-sum payment
• Interest only
• fixed period and fixed amount installments
• life income

9. The following dividend options are prevalent in participating life insurance policies:

• cash
• premium reduction
• accumulated at interest
• paid-up additions
• one-year term insurance