How Banking Policy Dividends Work
There are four basic options for collecting or using your dividends. We are working with mutual companies, remember? And when your company does well, meaning they actually over-collect premiums from you that year, they return the premium to you in the form of dividends.
These “bonuses” can be taken in any of the four ways listed below. But please note that option number 4 is what we use and what we teach.
1. You can just take the money.
One way to collect the dividend is to take a check from the insurance company. This may sound great, but beware, your dividends may become taxable this way, when you take more dividends than you’ve collectively put into your premium. This is why we don’t recommend this option.
2. Dividends can go towards premium.
When you elect to have your dividends go towards your premium, less and less money comes out of your pocket. Eventually, as dividends grow and compound, you will be able to eliminate your out-of-pocket premium expense entirely. This is probably the most commonly used method of dividend option by the average policy holder. But you, my friend, are not the average policy holder. If you want to use your policy for banking purposes, there’s a better option for you.
3. Dividends can go into a separate interest-bearing account.
Insurance companies also give the owner an option to have their dividends placed into an account that has potential growth attached to it. The insurance company sets that rate of growth and you’re able to draw on this account. But there is no option to contribute anything further to this account. And once you take any withdrawals, there is not an option to put it back. This, again, is not a good option for what we’re trying to accomplish with our banking system.
4. Your dividends can buy more insurance.
This option is what your banking policy will be set up to do as a default. This route is most beneficial to you and your system because it creates more cash value, which is the foundational tool we use when we build your banking policy. Your banking policy grows exponentially larger and more efficient with what are called Paid-Up Additions (or PUA). Your dividend buys more PUA insurance, and that creates more and more cash value for you to use and borrow against. Also, more death benefit will be available inside your system as well.
Again, these are the basic ways that dividends can operate. You, the policyowner, have the ability to change the way your dividends are used as well. But, the rule of thumb is to use these “bonuses” to buy more PUA so your banking policy can benefit you further.
When you’re ready to get started on creating your financial legacy or if you have more questions, most questions can be answered by watching this video. Start there and then schedule a consult with my team when you’re ready to begin.