In a previous article, I explained how whole life insurance is the same as a level premium term life insurance policy. Each requires you over pay in the early years and you under pay in the later. The difference is whole life pays a dividend for the over payment on the early years and throughout the entire existence of the policy.
These dividends are defined as an over payment of premium which is returned to the insured. It is not interest and this vehicle of insurance is not to be considered an investment. Who then, will provide you with the greatest return for your overpayment of premium?
First, you must understand there are two types of insurance companies selling life insurance. There are “stock” insurance companies and “mutual” insurance companies.
A “stock” insurance company is the same as any other company on the New York Stock exchange. The insurance company is owned by hundreds, if not thousands of people. The stock holders expect a return on their investment. Therefore, at the end of each fiscal quarter, a dividend is declared and paid to the stock holders. Then, at the end of the year, a dividend is declared which will be paid to the insured.
A mutual insurance company is different in that there are no stock holders to pay prior to paying dividends to the insured. In fact, as an insured you become an owner in the insurance company. At the end of each year all profits after expenses are distributed to each insured with a whole life plan. I’ve even, in past years, seen term policies which received a dividend; however, I have not seen one of those plans in many years.
Getting back to the question, “Who offers the best whole life policy”?, I am afraid my answer is two fold. If you want the highest dividends possible, you will easily see that you should purchase your whole life insurance policy from a “mutual” insurance company. While many of the greatest mutuals have changed their corporate status to a “stock company” during the last 25 years, there are many outstanding mutual companies remaining which offer excellent dividends.