“Generally, dividends increase the longer you hold the policy,” says Brian Ashe, President of Brian Ashe and Associates, Ltd. in Lisle, Ill., and Treasurer of the Life and Health Insurance Foundation for Education (LIFE). “Most companies offer five options for dividends.  You can take them in cash, apply them to succeeding years’ premiums, buy paid up additional life insurance with them, accumulate them at interest or buy as much term life insurance as the dividend will buy, based on your age.”

Dividends are usually tax-free until the total amount of cash a policyholder has taken from the policy, including the dividends, exceeds the premiums he or she has paid. You can find more information about your insurer’s dividends online. For example, MassMutual provides information about the benefits of dividends and dividend taxation on their website.

A dividend provides the customer incentive to remain loyal and renew coverage with their their insurance provider.  But who wouldn’t appreciate a little extra cash at the end of the year?

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