Life Insurance Dividends (Terms Explained)
Quick Facts
Only permanent policies are eligible for life insurance dividends
The amount you receive depends on the size of the life insurance policy — more expensive policies yield higher dividends
You can collect dividends as cash, use them to pay life insurance premiums, or leave them in a savings account to accrue interest
Life insurance dividends are a return on your annual premium payment. Unlike dividends on stock market investments, life insurance dividends are not taxable and can be used in a variety of ways.
You may already receive an annual dividend check from your insurer if you have whole life insurance. Policyholders can also apply dividends to their monthly rates or leave it in a savings account to gain interest.
This guide covers all your options regarding life insurance dividends, including how much you’re eligible to earn with different types of life insurance.
Understanding Life Insurance Dividends
Permanent life insurance pays dividends when a company performs better financially than anticipated. Your company will return any unused premiums in the form of life insurance dividends, and how much you receive depends on the size of your policy and your annual rates.
You must have whole life or another type of permanent policy to earn dividends, as only cash value life insurance is eligible for returns like these.
How My Life Insurance Dividend is Calculated
Every year, you pay an annual premium for life insurance. Insurance companies then subtract the annual cost of claims and business operations. Anything leftover is divided among policyholders as a life insurance dividend.
Most companies offer a dividend rate of 3%-6% on annual premiums. At the lowest rate, you can earn up to $1,500 annually on a $50,000 policy.
Policyholders must remember that dividends are not guaranteed. You only earn dividends if the insurer performs well, and most companies won’t guarantee dividends due to the risk. If you want guaranteed life insurance dividends, be prepared to pay higher rates.
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How to Use Life Insurance Dividends
Like other elements of cash value life insurance, you can access your dividends at any time and use them in the following ways:
Cash: The insurance company will send a check or direct deposit annual dividend earnings into the bank account associated with your policy.
Life insurance payments: Policyholders can apply dividends to life insurance payments and lower their monthly rates.
Supplemental coverage: Use dividends to buy supplemental life insurance or prepay for additional coverage on a policy.
Savings account: Keep life insurance dividends in an account with your insurance company to accrue interest.
Dividend options vary by company, so review your policy closely to determine how to best use yours.
Fortunately, even if you surrender life insurance, the dividend account is added to the surrender value. Learn more in our guide to cash value vs. surrender value.
Guaranteed Life Insurance Dividends
Since companies generally offer a 3% rate on life insurance dividends, this table shows how much you can earn on different policies.
Some companies have a higher rate. For example, according to Cision PR Newswire, Guardian Life recently increased its dividend rate to 5.75%. This is why it’s important to compare multiple companies.
Guardian Life ranks among our best life insurance companies, but you may find a different insurer better fits your lifestyle. Scroll down to compare insurance companies or enter your ZIP code above to find local companies offering whole life insurance dividends.
Life Insurance Companies with the Best Dividends
Companies with the best dividends will have a 5% rate or higher. However, rates change annually based on performance, so look at A.M. Best and other third-party rankings for life insurance dividends history and long-term financial strength.
The following national insurers have a “Superior” A.M. Best rating of A++ and a steady dividend rate of at least 5%:
Guardian Life
MassMutual
New York Life
PennMutual
Read our Penn Mutual life insurance review or explore other whole life insurance companies and policy options to find the best life insurance near you.
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Types of Life Insurance Policies Over Dividends
Since only permanent policies have insurance dividends, this table compares monthly whole life insurance rates by age and policy limit. Read more about how much life insurance costs.
In this example, a 30-year-old policyholder who pays $103 per month for $100,000 in coverage could earn up to $3,000 in annual life insurance dividends, more than double their annual rates.
However, these rates are considerably higher than term life, so read term life insurance vs. whole life insurance to find the most affordable policy for you.
Everything You Need to Know on Life Insurance Dividends
Life insurance dividends are a return you earn on any unused premium payments. Only whole life insurance earns dividends, so your monthly rates will likely be higher depending on how much coverage you need.
Generally, you can earn $1,500 per year on a $50,000 policy, but dividends increase if you have a more expensive policy or choose a company with a higher rate. Most companies offer 3%, but some can offer 6% or more if it performs well.
Compare local life insurance companies to find the best return on your investment. Use our comparison tool above to get started.
Frequently Asked Questions
Can I change my life insurance dividend option?
You can typically change your life insurance dividend options when your policy is in force, but confirm with your company before making any changes.
Are dividends the same as cash value?
No, the cash value is the amount guaranteed to the life insurance policyholder during their lifetime. Dividends are an additional amount of money earned based on annual premium payments and the insurance company’s financial performance.
Can you withdraw dividends from life insurance?
When life insurance dividends exceed premiums, policyholders can withdraw the amount as cash.
Should I choose a life insurance company based on dividends?
Choosing the right life insurance company depends on more than just dividends. Read our guide on how to buy life insurance to learn more.
What is a dividend-paying whole life policy?
Dividend-paying whole life insurance is a permanent policy that pays out a partial return on your monthly or annual premiums. This is not to be confused with return-of-premium (ROP) life insurance, a type of term life that returns premiums if you outlive the policy.
Are life insurance dividends taxable?
Life insurance dividends are not taxable because they are considered a refund for overpayment.
Can I choose to receive my life insurance dividends in cash?
Depending on the life insurance company, you can receive dividends as cash, apply them to your life insurance rates, or buy supplemental coverage.
Can I take out a loan against my life insurance dividends?
Policyholders can only take out loans against the cash value of life insurance.
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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states.
After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in…
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Written by
Rachael Brennan
Licensed Insurance Agent
Benjamin Carr worked as a licensed insurance agent at State Farm and Tennant Special Risk. He sold various lines of coverage and informed his clients about their life, health, property/casualty insurance needs.
Assessing risks and helping people find the best coverage to suit their needs is a passion of his. He appreciates that insurance was designed to protect people, particularly during times…
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Reviewed by
Benjamin Carr
Former State Farm Insurance Agent
