Life Insurance

What is participating life insurance?


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2010-10-15 00:33:26
2010-10-15 00:33:26

Participating life insurance is what a policy is called when the agent gives the pitch that sounds like "and when the company makes enough surplus money, we will return (or share) some of that money with you in the form of dividends". I once saw a check for about $1.73 that a friend received, and they dared to call it a dividend.

In reality, a dividend is nothing more than a partial return of a PREMIUM OVERCHARGE. At the risk of sounding redundant, it's your own money being returned to you. Get Standard and Poor's book of life insurance and look at the cost of a participating policy versus a non-participating policy and you will see that a 25 year old, for example, is OVERCHARGED more than 50% for his policy. When you get through puking up, come back and check your computer and look for US TREASURY DECISION NO. 1743, that states almost word for word the first sentence of this paragraph.

More proof? Read your instruction booklet for when you fill out your income tax. I still have a copy from the '70's that uses the words of sentence 1 of the previous paragraph. However, the crafty insurance industry got the IRS to change the wording and now, if memory serves, it simply says to not claim dividends from an insurance company. NEVER EVER BUY a participating policy. NEVER EVER EVER!

Some whole life insurance policies can return money to you in the form of dividends. These are called participating policies. If the company earns a surplus because of profitable operations, owners of participating policies could share in the surplus. Since earning such a surplus depends on many variables, dividends are never guaranteed.


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A participating life insurance policy is one that pays a dividend to the owner. Mutual life insurance companies offer participating life insurance policies as the policyholders share in the profits of the insurance company since the policy owners are the owners of the company.

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Participating whole life will have significantly higher premiums required than both term life insurance and universal life insurance (permanent coverage) that features a no-lapse guarantee.

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Participating policies are life insurance policies that pay dividends, where dividends enable you (the policyholders) to participate in the insurance company's favorable experiences (such as higher than expected investment returns or lower than expected operation.) Non-participating policies, historically belong to the stock companies where the company's favorable expenses were paid to the stock holders, rather than the people who own policies within the insurance company. Even though the participating policies were mostly offered by the the mutual insurance companies, due to consumer appeals to receive dividends, stock companies also started offering participating policies. You should keep in mind that the dividends are not guaranteed and it is illegal for insurance agents to make future projections (where the participating policies also tend to have little higher premiums.)

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Whole life insurance, as the name implies, is insurance which provides coverage for the policyholder's entire lifetime. Whole life policies can be divided into two categories: participating and non-participating. Both policies provide level premiums, lifetime protection and a guaranteed cash value-but participating whole life plans pay an annual dividend. The annual dividend is NOT guaranteed, and in most instances is linked to long-term interest rates as well as the insurance company's performance. If you have an existing participating whole life policy which was purchased in a high interest environment, it is a good idea to request an updated policy illustration-the projected values may have changed dramatically. Most participating whole life policies have multiple dividend options.

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