Why Dividend Rates Don’t Matter

When searching for an Infinite Banking policy, a common question is, which company will give me the best dividend rate? Today we dive into answering why dividend rates don’t matter. The perception is that the highest dividend rate will turn out to be the best policy performance over time, ending up with the highest growth in your policy, and giving you the greatest financial benefits.

But this is the wrong approach to building capital and becoming your own banker by using Infinite Banking to build growing, accessible capital you can use.

Today we bust common misconceptions and highlight the various factors that influence your policy’s dividends—from the guaranteed interest rate to the financial strategies of insurance companies—arming you with the knowledge to make savvy, long-term financial decisions.

We also break down the all-important task of selecting the right insurance company for infinite banking. With a keen eye on the practices of various insurance companies, we emphasize the role of long-term stability and customer-focused service. Understand why the initial illustrations aren’t the be-all and end-all, and learn the importance of a company’s conservative financial practices in sustaining your policy’s performance over time.

Finally, we tackle the dynamic nature of dividend rates and how infinite banking principles can help you maximize the compounding growth of your cash value, even when borrowing against your policy. This episode is packed with practical advice on implementing infinite banking now to ensure your financial assets are secure and growing for future generations. Don’t miss out on these invaluable insights that go beyond the numbers to profoundly impact your financial future.

To find out why dividend rates don’t matter, and see how to avoid the dividend rate comparison trap that prevents you from having the greatest success with Infinite Banking… tune in today!

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Planning for Long-Term Success

When you engage in the Infinite Banking Concept, it’s important to remember that you’re seeking long-term success—over your lifetime, but also for generations to come. Dividends can be a major part of that, but not in the same way you’ve been trained to think about them in the stock market. Dividends in the life insurance realm work a bit differently, and they may seem low to you if you’re used to chasing high rates of return. 

[4:32] “[The ‘Seven Generations Legacy’ is] this idea and this concept of being able to create something that you can benefit seven generations ahead. And the thinking required to do something of that proportion means that you have to put systems in place that you yourself cannot fully control. You’re putting them in motion, you’re being the impetus, the starting point, the spark that starts something.”

What Are Dividends?

The technical definition of a whole life insurance dividend is a refund of excess premium. This is often used to detract from the value of dividends because it’s “just money that you overpaid.” However, this is just a definition for IRS classification and is not the reality of dividends if you actually examine a life insurance policy. Because once you examine a life insurance policy, you’ll see that those designed for cash value growth will eventually have a cash value that exceeds all premiums ever paid to the policy. So how could you be overpaying?

Dividends are a portion of the company’s profits that you receive as a partial owner of the mutual company you have a policy with. The company uses income from your premium payments to make investments into assets like bonds. When the company profits, they must share those profits with policy owners, and that comes in the form of a dividend. 

Insurance companies declare a dividend rate each year, although every company makes calculations differently, and those calculations are proprietary.

What Does the Declared Dividend Mean?

Most people think of “cash value” as the money in your life insurance policy when really it’s all in the phrasing. Your cash value is the current value of your policy. It’s not actual cash. It only becomes cash if you surrender your policy, and the cash value at that point in time is what you’ll receive in actual cash. It’s your equity. So what does this have to do with dividends? 

Well, it means that you can’t really look at your dividend as a rate of return on your cash, because you don’t have cash.

[09:35] “So the first thing I think people need to understand is [that] dividends are not a percentage of crediting on your particular cash value. If a company declares a 5.5% dividend, you cannot just say ‘Oh, my cash value is going to grow by 5.5% that year.’ Why can’t you say that? Because that 5.5% is a gross dividend in many cases.”

The declared dividend that you see is a gross figure. It does not account for fees, nor does it account for any money you have leveraged (some companies apply the dividend differently to dollars that are leveraged). The percentage declared is for the entire pool of money, but your actual experience of that dividend rate could vary widely from someone else’s experience. That does not mean it’s unfair or random, it’s based on proprietary calculations. 

To further drive this point home, if you compare the declared dividend rates to actual policies, companies with higher declared dividends don’t always come out “on top.” This is why you don’t just want to buy a policy with the “best” dividend rate in a given year because they all fluctuate from year to year. This is because all companies are thinking long-term, and must make conservative choices for longevity. If you see a company with a high dividend now, it’s likely because they’ve played it safe in the years prior.

Dividends and Contractual Increases

Within your life insurance contract, you may have language that indicates a guaranteed increase each year. For example, you may be guaranteed 2% growth each year. This guaranteed growth can be a part of the declared dividend, meaning that you won’t get 7.5% growth, you’ll get 5.5% growth minus the costs, but not fall below 2%. 

If the declared dividend were to fall below 2%, you would still experience your guaranteed 2%. 

Why Dividend Rates Don’t Matter

The critical point here is that dividends can fluctuate. So rather than trying to buy a life insurance policy with the best dividend, you really want to work with a company that has a strong history of paying dividends. The fact that a dividend was paid during difficult times is much more important than how big or small the dividend was. 

Life insurance is not a good asset because you get a high rate of return. Life insurance is a good asset because it has consistent growth and your money compounds even when you’re using it (via a policy loan). These two factors alone are so powerful and contribute to your long-term success. 

If you’re skeptical, remember that banks operate off of interest rates, but people still store their money with banks even if the interest rate is zero. Do interest rates matter to you when you choose to put your money in the bank? Probably not. So don’t get too hung up on life insurance dividends. What’s important is that life insurance is a good place to store your cash.

Book A Strategy Call

Do you want to coordinate your finances so that everything works together to improve your life today, accelerate time and money freedom, and leave the greatest legacy? We can help!  Book an Introductory Call with our team today https://themoneyadvantage.com/calendar/, and find out how Privatized Banking, alternative investments, or cash flow strategies can help you accomplish your goals better and faster. That being said, if you want to find out more about how Privatized Banking gives you the most safety, liquidity, and growth… plus boosts your investment returns, and guarantees a legacy, go to https://privatizedbankingsecrets.com/freeguide to learn more.