I have a Whole Life policy that pays dividends. Can I use those dividends to cover both my current Whole Life premiums and also pay for a new Term Life policy if it’s with the same company? I’m considering adding a Term policy on top of my existing Whole Life policy. Any advice?
That’s not an unreasonable idea depending on how long your Whole Life policy has been active. Your annual statement should show the current dividend amount. If it’s high enough, it could cover both policies. Usually, you just set the Whole Life policy to a premium offset and then get a check for the excess. Some companies may have a simpler way to handle it though.
It could be taxable unless you add a Term rider to your current policy. It’s usually more expensive than just buying a separate Term policy, but adding the rider could open up more opportunities for paid-up additions (PUAs). It’s more of a restructuring of the policy.
@Sam
If you take the dividends as cash from the old policy and use them to pay for the new Term policy, it’s treated as a return of premium until you exhaust the basis in the policy. So, it won’t be taxable right away, at least not initially.
@Bailey
Good point, thanks for the clarification.
If the cash value is high enough to cover the premiums, it’s a smart move. I once used the cash value from a life policy to pay for a long-term care policy for a client. He’d had the life policy for many years, and it saved him from paying out of pocket.