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Participating life insurance, also called dividend-paying life insurance, helps give policyholders a chance to benefit when the insurer has a solid financial performance. On top of this, it offers lifelong life insurance coverage and a cash value growth component that grows tax-deferred to help increase wealth. Below, we’ll explore participating life insurance in more detail and explore some ways to get the most out of these policies.
Participating life insurance is a permanent life insurance policy type, usually whole life insurance, that may pay dividends to the policyholder if the insurer performs well financially.1 For example, insurers may have paid fewer death benefits than expected, found ways to cut costs, or outperformed investment expectations. The company’s board of directors evaluates its needs and, if it decides it doesn’t need the extra funds, pays a dividend to participating life insurance policyholders. As a result, these policies help offer another layer of potential financial benefits that traditional permanent life insurance policies lack.
Participating life insurance policies are often whole life insurance policies. These come with higher premiums than term life insurance to account for the lifelong coverage and cash value growth component. Whole life insurance also costs more than other permanent policy types, like universal life insurance. For reference, here are some average costs for a $250,000 non-participating whole life insurance policy for healthy men and women:2
| Age and Gender | Monthly Premium |
|---|---|
| Male age 30 | $211 |
| Female age 30 | $185 |
| Male age 40 | $303 |
| Female age 40 | $275 |
| Male age 50 | $435 |
| Female age 50 | $403 |
Participating life insurance policies will cost more than this, on average, due to the potential for dividends. However, this can reverse over time as your cash value and dividends grow, which can help to cover some of your premiums.
Here are some key differences between participating and non-participating life insurance policies:3
Don’t wait until it’s too late. Help cover yourself and your family with coverage from Aflac.
You can use your participating life insurance policy dividends in several ways:
You can have the insurer send you cash payments as a check or ACH. This offers the most flexibility since you can use your dividends for anything you want, such as investing extra for retirement or making a discretionary purchase.
Paid-up life insurance is extra coverage you can purchase with life insurance dividends. It helps you to increase your death benefit without raising premiums. A larger policy entitles you to a larger dividend in the future, meaning paid-up insurance can help you compound dividends and earn more.4
Paid-up insurance boosts your cash value contributions as well, helping to lead to more potential cash-deferred growth over time. This option can work well if you want to accelerate your cash value and grow coverage to keep up with inflation or rising lifestyle expenses.
You can ask your insurer to put dividends toward premium payments. This helps you reduce or fully cover your premiums without losing coverage. This may be a good choice if you want to maintain the same level of coverage while reducing your life insurance expenses.
Insurers let you save dividends in an insurer-maintained interest-bearing savings account. You can earn more on your dividends without managing them yourself. Additionally, you can withdraw from this account as needed. Interest earnings may be taxable.
If you borrow from your cash value, you can ask the insurer to pay dividends toward the policy loan. This can help you reduce your loan balance and avoid policy lapse without paying as much out of pocket.
Here are some circumstances where participating life insurance could work for you:
If participating life insurance doesn’t fit your needs, consider these alternatives:
Participating life insurance helps offer a financial component that lets you earn potential dividends when the company performs well. This may help you to bolster your insurance, pay premiums, or accelerate your cash value growth. However, premiums may be higher initially, and insurers don’t pay a dividend unless they have extra funds to do so.
If you have any other questions about a dividend-paying policy life insurance or want to explore your life insurance coverage options, Aflac can help. Chat with an agent today to get a quote.
1NerdWallet - What Is a Participating Life Insurance Policy? Published December 4, 2023. https://www.nerdwallet.com/article/insurance/participating-life-insurance-policy. Accessed May 7, 2024.
2Forbes - Whole Life Vs. Universal Life Insurance. Updated April 19, 2023. https://www.forbes.com/advisor/life-insurance/whole-life-vs-universal-life-insurance/. Accessed May 7, 2024.
3Investopedia - What Is a Participating Policy? Definition and How It Works. Updated September 3, 2023. https://www.investopedia.com/terms/p/participation_policy.asp. Accessed May 7, 2024.
4Investopedia - Paid-Up Additional Insurance: Definition and the Role of Dividends. Updated December 5, 2022. https://www.investopedia.com/terms/p/paidup-additional-insurance.asp. Accessed May 7, 2024.
Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.
Aflac coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, Aflac coverage is underwritten by American Family Life Assurance Company of New York:
Aflac life plans - 68000 series: In Arkansas, Idaho, Oklahoma & Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68100-A68400. 65000 series: In Virginia, Policies ICC0965JTO & ICC0965JWO. B61000 series: In Arkansas, Idaho, Oklahoma & Virginia, Policies: ICC18B61JWO & ICC18B61JTO. In Delaware, Policies B61JWO, B61JTO. B60000 series: In Arkansas, Idaho, Oklahoma & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Q60000 series/Whole: In Arkansas & Delaware, Policy Q60100M. In Idaho, Policy Q60100MID. In Oklahoma, Policy Q60100MOK. Not available in Virginia. Q60000 series/Term: In Delaware, Policies Q60200CM. In Arkansas, Idaho, Oklahoma, Policies ICC18Q60200C, ICC18Q60300C, ICC18Q60400C. Not available in Virginia.
Coverage may not be available in all states, including but not limited to DE, ID, NJ, NM, NY or VA. Benefits/premium rates may vary based on state and plan levels. Optional riders may be available at an additional cost. Policies and riders may also contain a waiting period. Refer to the exact policy and rider forms for benefit details, definitions, limitations and exclusions.
Aflac WWHQ | 1932 Wynnton Road | Columbus, GA 31999
Aflac New York | 22 Corporate Woods Boulevard, Suite 2 | Albany, NY 12211
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