Building cash value with dividends

Building cash value with dividends

You’ve probably heard of dividends, but you may associate that with owning shares of a company’s stock. Well, certain life insurance companies offer dividends, too.

When you purchase a participating whole life insurance policy, you have the opportunity to receive annual dividends. Dividends can help add value to your policy, providing enhanced cash values and an increased death benefit beyond the levels already guaranteed by the policy.

Understanding dividends

Dividends allow the insurance company to return a portion of premiums paid. If the company experiences favorable operating results, it can share that success with policyholders by declaring and paying dividends. We strive to deliver you favorable performance by:

  • Managing our expenses
  • Accurately underwriting new policy applicants
  • Wisely investing our assets

Even though Ohio National has paid dividends every year for over 90 years, it’s important to note that dividends are not guaranteed. One important benefit is that once dividends have been declared and paid to policyholders, the dividends cannot be taken back by the company.

Using your dividends

When dividends are declared, policyholders have a choice of how to use the dividends credited to their policies. They can:

  • Increase the policy’s death benefit and cash value by purchasing additional paid-up insurance.
  • Reduce premium payments.
  • Receive the dividends as a cash payment.
  • Place the dividends in an interest-bearing account for future use.

Using dividends to purchase additional paid-up insurance (or paid-up additions) is the most popular way that policyholders use dividends. Paid-up additions are small chunks of paid-up whole life insurance that have their own cash value and can even generate their own dividends. They can have a tremendous compounding effect over the life of the policy.

It’s not uncommon for whole life policies to experience impressive growth in both their cash value and death benefit, beyond the original guaranteed levels, due to dividends that are used to purchase paid-up additions.

Dividend rate history

When we declare a dividend, a dividend rate is also declared. This rate, expressed as a percentage, represents the interest element that goes into our dividend calculation. (It does not represent an interest percentage that will be credited to a policyholder as a dividend.)

And with Ohio National, your dividend scale remains the same even if you choose to access your cash value by taking a loan. Other companies may use a scale that credits a lower dividend based on the assets that are out on loan.

Dividend taxation

The Internal Revenue Code defines dividends as a return of excess premium to the policyholder. In other words, dividends represent premium dollars that were not needed to pay for the life insurance protection and cash accumulation the policyholder received. Therefore, dividends used to purchase paid-up additions are generally not taxable. Dividends are also not subject to taxation when paid in the form of cash, until the amount paid out exceeds the total premiums paid into the policy.

For more information on how dividends can enhance your whole life policy, talk to your Ohio National financial professional.

Note: Withdrawals and loans, if taken, reduce the policy death benefit. Any outstanding policy loan amounts are subtracted from the policy death benefits, or from the cash value payable at surrender of the policy.

Whole life is issued by The Ohio National Life Insurance Company. Guarantees are based upon the claims-paying ability of the issuer. Dividends are not guaranteed; however, for 2022, Ohio National has guaranteed a minimum of $40 million in dividends to eligible policyholders. This guarantee does not impact the published 2022 dividend scale. Product, product features and rider availability vary by state. Company not licensed to conduct business in New York.