5 Common myths of Dividend Paying Whole Life Insurance

5 Common myths of Dividend Paying Whole Life Insurance


You may have heard about dividend paying whole life insurance and wondered if it’s right for you. But with so many myths out there, it can be hard to know what to believe. Here are five common myths about dividend paying whole life insurance and why they aren’t true:

1. Is Dividend Paying Whole Life Insurance is a Bad Investment?

Dividend Paying Whole life insurance is an investment that pays dividends. It’s not just a lump sum you can withdraw, but rather a product that builds cash value over time. The cash value is what you build equity in, and this allows you to use the insurance policy as collateral for other loans or investments.

Dividend Paying Whole life insurance builds tax-deferred cash value – that means it grows faster than most savings accounts because it is protected from taxes until withdrawn (upon death). This makes it an ideal way to save for retirement or other long-term goals when compared to traditional savings accounts which typically yield less interest over time due to inflation rates eroding their purchasing power.  If a dividend paying whole life insurance policy is designed properly, you can borrow against or take withdrawals completely tax-free (under current tax laws).  

2. Do you need Life Insurance if you’re young and don’t have kids?

  If you’re young and don’t have kids, or you’re a young parent who is not sure if they need life insurance yet, take a moment to consider the following points:

  • Your family depends on you whether you have children or not.
  • You may become uninsurable when you need to purchase life insurance.
  • Your business depends on you.
  • Your estate depends on your income.
  • You have no way of knowing what will happen to your income in the future—it could be more or less than it is now, depending on many factors such as age and career trajectory.
  • You may want to retire earlier than expected due to health reasons; this would leave an unexpected hole in your finances that needs filled with additional savings or insurance policies (if available).
  • A child needs financial protection until they reach adulthood; this could last up until age 22 or older depending on state law.

If you relate with even a single item in this list, you should be considering what a whole life insurance policy could do for you.

whether you have kids or not, dividend paying whole life insurance just makes sense

3. Is Dividend Paying Whole Life Insurance too Expensive?

In the context of whole life insurance, this question comes up a lot. And it’s a valid one—whether you are buying a new policy or evaluating one you already own, you want to know if it is worth the price tag.  Dividend Paying Whole life insurance is not just expensive in and of itself; it can also be expensive to maintain over time. But there are ways to reduce those costs while still getting what you need out of your policy. For example: You may be able to reduce your insurance by buying less coverage and applying more of your premium towards the cash value.  The cash value can be used for purchases or other investments.

Dividend Paying Whole Life Insurance will pay out upon your death.  It’s not a matter of if. It’s a matter of when.  Term Insurance will cover you for a period/term of time and may or may not pay out.  Most policy terms expire before the owner dies leaving you with nothing.

4. Is Dividend Paying Whole Life Insurance only for the wealthy?

Dividend Paying Whole life insurance is often thought to be only for those with significant assets to protect, but it’s also an excellent way to build wealth. In the first place, if you use whole life insurance to purchase a CD or other investment, you would generally be paying higher fees and expenses on that investment than what you would pay for a whole life policy. 

Secondly, as long as your premium remains level over time and doesn’t increase from year-to-year (which is very common in other types of whole life policy’s), then your cash value will grow at a faster rate than other investments because of its tax-deferred growth feature.

Even though premiums are high initially because the insurer bears the risk of death or living longer than expected; over time this cost can be offset by the benefits of lower fees associated with mutual funds or CDs (i.e., no sales charges).

5.  Can Dividend Paying Whole Life Insurance transfer wealth on a tax-free basis?

Dividend Paying Whole life insurance is a good way to build wealth and/or pass something on to your family or favorite charity. While other investments strategies may earn higher rates of return when the market is performing favorably, you must also consider the tax implications of that strategy as it is passed on to your family.  For example, you can pass on 401k and IRA/Roth IRA plans to a spouse, but if these plans are passed on to your children they must abide by the inheritance tax guidelines. 

With the most recent Secure Act rules inherited 401k’s and IRA’s must be withdrawn from the account over a 10-year period which could increase the tax bracket of your child.  A Dividend Paying Whole Life Insurance policy’s death benefit in paid directly to your beneficiary tax-free, whomever that may be.  There is no better way to transfer wealth in a tax-efficient manner than whole life insurance.

In conclusion, Dividend Paying Whole life insurance is not as complicated of a product as it may appear due to the myths and misconceptions about how it works. Hopefully this article has helped clear up some of the confusion surrounding whole life insurance. For more information on whole life insurance or to get answers to your questions, contact us today!


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Financial Planning and Advisory Services are offered through Prosperity Capital Advisors (“PCA”), an SEC registered investment adviser.  Registration as an investment adviser does not imply a certain level of skill or training. Intelliplan Financial and PCA are separate, non-affiliated entities. PCA does not provide tax or legal advice.

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