Myth #6: Dividends Are Just A Return Of Unused (Overcharged) Premium

Updated: Oct 15, 2020

And here's another myth to be busted. "Dividends are just a return of unused (overcharged) premium." This is a myth perpetuated by those who do not understand the underlying economics within a cash value life insurance contract, but we'll go ahead and explore where this came from and why it's true... and false, all at the same time.

Cash value life insurance has some of the GREATEST benefits in the tax code. As such, every few years, it comes UNDER ATTACK by members of the United States Congress in order to raise more revenues (increase taxes).

NAIFA and other life insurance lobbyists helped to define the tax treatment of dividends to let the Internal Revenue Service classify dividends as a "refund of unused premium" rather than a taxable return, so that the tax benefits can be preserved