You know that carrying a life insurance policy is vitally important for you and your family. But selecting a policy is a little more complicated than picking up a phone or filling out a form and having coverage. There are so many life insurance companies to choose from. And once you make your selection, there are many types of policies to choose from. There is no perfect one-size-fits-all life insurance policy. Your needs and financial situation will determine the type of policy you choose.

Your options include term life insurance and permanent life insurance in the form of participating and non-participating whole or universal life insurance. A Participating Life Insurance Plan is a noteworthy option with great benefits that not everyone is aware of.

Here is a breakdown of how participating plans work and how they might benefit you in life as well as in death.

How Does a Participating Life Insurance Policy Work?

Life insurance coverage operates as a way to cover your financial responsibilities, pay off debts, and take care of loved ones after you have passed. But what if you could take advantage of your life insurance policy while you are still living? With participating whole life insurance you can.

Participating life insurance is a policy with investment opportunity. It works by taking part of your life insurance premium and placing it in a mutual fund. Then, when your insurance company earns an excess profit, you receive dividends. You can choose how you use those dividends to benefit yourself. It is important to note that a dividend is not always guaranteed because, like all market investments, the value of the mutual fund could go down in the market.

Though the structure and frequency of dividend payments can vary, the option to earn interest and share in the profits of the insurance company is a worthwhile investment if your financial situation and circumstances allow for participation.

What is a Dividend?

When you choose to invest in a company as a shareholder, you have the opportunity to earn dividends. A dividend is a financial allocation to shareholders as a reward for their investment. This allocation typically comes from the net profit the company has earned during a specified period. Dividends may be rewarded monthly, quarterly, or on an annual basis.

The amount of each dividend payment is decided by the company’s board of directors and can vary based on profits and projections. These changes can happen as often as month to month. Companies set their own policies for how dividends are rewarded. Sometimes payments are made as cash to the shareholder while other companies retain the dividend and invest it in additional shares on behalf of the shareholder. Some companies allow the shareholder to decide how to use their rewarded dividends.

How Are Dividends Used?

Company policy for how dividends are rewarded and used varies across the industry but there are three main ways that policyholders use their earned dividends.

Pay Premiums

Annual premiums for participating life insurance policies are some of the highest in the industry. This is because you have the opportunity to benefit from the investment. Your insurance company charges you a large amount for your policy and then returns the excess to you in the form of a dividend. When you get this return, you can choose to use it towards your premium for the following year, thus allowing the policy to essentially pay for itself.

Increase Interest

Some policies allow you to reinvest your dividend back into the company to earn more interest. Policyholders who choose this option use their participating life insurance as a type of savings account that is earning for them with a tax advantage. In most cases, you can withdraw your dividends at any time.

Cash Payment

When choosing a cash payment, your insurance company will send you a check with the full amount of your dividend. You are free to use this cash amount however you please. Some choose to invest it elsewhere or use it to pay for living expenses. Each payment may be larger or smaller depending on company profits.

Benefits of a Participating Life Insurance Policy

Purchasing a participating life insurance plan can help you boost your financial goals in many ways.


Having a participating policy can allow you to compound additional funds to be accessed during retirement. The interest earned and reinvested dividends through the years can potentially become a second retirement account you may use to pay for big or small life expenses as you age.


Allowing your life insurance policy dividends to earn interest long term by reinvesting can pay for education expenses if planned correctly. Purchasing a participating policy at the time that you need education funds will likely not earn quickly enough to pay for schooling. But if you purchase a participating life insurance policy when your children are young and allow the dividends to earn more interest for you each year, when they are ready to move on to higher education, you can draw on your dividends to cover education expenses.

Death Benefit

Do you want to leave a financial legacy when you pass? Having a participating life insurance policy can help increase the financial gifts and legacy you leave behind. Earning dividends and interest allows your family members to receive a larger death benefit upon your passing. It also affords you the option of leaving larger financial gifts to charities and organizations that align with your values.

Find the Right Policy for You

Because participating life insurance policies are so different from standard life insurance policies, you should enlist expert help to select the right policy. It is easy to get overwhelmed with the variance and specifics of these types of policies if you are not already familiar with them.

Our qualified insurance professionals at Patriot Insurance Brokers can explain all of your options, walk you through differing scenarios, and can set you up with an insurance policy and company equipped to ensure that your money earns the largest dividends available to you.

Call us to learn more about what is a participating life insurance policy.