How to use dividends in a life insurance policy

Dividends of life insurance policies can be used in several ways, but make sure you know the tax consequences of each one by consulting with a qualified tax advisor before acting.


Determine the extras paid by insurance

Look for the last annual statement of your life policy.


Compare the death benefit of your policy last year with the death benefit of your policy this year.


Subtract the minor from the major to determine the number of disbursed additions (PUA) of insurance of dividends acquired during the past year.


Make a note in your records or financial software of the new major death benefit, which the beneficiary will receive if you die.


Include this major death benefit in any financial planning calculation you do.


Transform dividends into cash

Find the contract number of your insurance policy, either in the policy itself or in your last annual statement.


Call customer service or division that owns the policy at the main office of the insurance company.


Tell the representative that you want to change the way your dividends are used and that you want the next dividend to be credited to your policy as a check to be sent directly to you.




Virtually all life insurance automatically uses dividends to buy PUA, which is why the illustrations of sales or accounting books show an increase in the benefit of death every year. PUAs increase the value of your insurance policy and provide more money to your beneficiary in the event of your death. PUAs can also be delivered in cash. Under the current tax code, the IRS does not require insurance companies to report dividends or PUAs they buy for the calculation of their income tax, and there is no need for you to declare it on your annual tax return, provided when you let them accumulate in your insurance company. If you die, your beneficiary receives the total death benefit of your life insurance policy, including PUAs, without paying taxes on the amount. Fully document phone calls with the head office of the insurance company, taking into account the date of the call, phone number and the full name of the representative. Your annual dividend can be used to reduce or eliminate premiums that must be paid to keep the policy in force. If the dividend exceeds the amount needed to pay the premiums, go to the insurance company to use the rest in one or more of the other dividend options. As with other dividend options that leave the dividend in the company, there should be no consequences on income taxes under the current tax code. If the dividend is not enough to pay the loan on time, you may want to pay the loan yourself to fully restore the policy values ​​and benefits. Again, under the current code, there should be no tax consequences for any income when leaving the dividend in the company to use it in this way.



Not all insurance companies use the same terminology in their contracts. Dividends are not of interest, so 8% of dividends do not add 8% of death benefits or cash values. Because dividends are not guaranteed, neither are the PUAs that can be purchased. PUAs can trigger an income tax on the effective amount you receive. If your policy expires or disappears for a loan against it, taxes may apply for that fiscal year. If you are considering the purchase of a life policy, have your agent fully explain the “disbursed additions” clauses before adding them to your policy, as you may not need or want them. Remember to check where and how dividend receipt is reported on your income tax return. Once you change the dividend option, it will stay that way until you notify the insurance company otherwise. A policy change like this can be done only once a year and takes effect on the date of the policy’s anniversary. Dividends that do not accumulate in the insurance company will affect the growth of your cash values ​​and the death benefit. Using dividends to reduce premiums will affect the growth of your cash values ​​and the death benefit. The excess of dividends goes beyond the payment of the premium, usually goes to the purchase of PUA. If the dividend is not enough to pay the entire premium, you must pay the balance at maturity to avoid the portfolio drop or a policy loan (automatic premium loan or APL). Payment of interest on policy loans is not tax deductible. The outstanding loan balances will continue to charge interest and will be deducted from the amount paid to the beneficiaries for the death. Policy loans can occur if you do not fully pay your premiums on time. Be careful with the proposals that suggest the use of dividends for the purchase of a separate life insurance policy, as such uses can trigger an unexpected tax event.

Updated: November 21, 2019 — 12:11 pm

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