What is Participating Life Insurance

Participating life insurance is a type of permanent insurance policies that offer dividends to policyholders. These dividends are paid annually and are not fixed most times. More so, they depend on the amount of profit earned by the insurance company. For instance, if John buys a participating life insurance policy from State Farm Insurance and the insurance company have surplus earnings that year, State Farm Insurance will credit John’s account with a bonus. On the downside, the insurance provider will not pay him any dividend if it runs into a deficit.

As of today, only whole life insurance qualifies as participating life insurance. That’s why the term participating life insurance is used interchangeably with whole life insurance. This means that the premium paid by policy owners to the insurance company is invested into their insurance account and cash value/saving account. Policyholders can borrow money from the cash value account as well as earn interests/dividends from it.

What’s more, policyholders of participating life insurance can use their dividends in numerous ways. They can use the payment to reduce the cost of their premiums. They can even accept the dividends in cash or buy shares in the insurance company. However, when the participating life insurance matures, policy owners can receive their full payouts.

Pros of Participating Life Insurance

  • It offers stable returns in the form of bonus or dividends.
  • Dividends are free from tax.
  • Life-long coverage and death benefits are guaranteed.
  • Policyholders can borrow funds from their saving accounts.
  • It provides permanent insurance coverage.

Cons of Participating Life Insurance

  • The premiums are relatively high
  • Dividends are not fixed and are dependent on the profits made by insurance firms

In sum, buying a participating life insurance is a long-term investment. You need to be patient and strategic to enjoy the full benefits. You can contact us or your insurance agents for more information about participating life insurance.