Western Fraternal Life :: What in the World are Face Amounts and Dividends?

What in the World are Face Amounts and Dividends?

Mar 04, 2016

By Shannon Daugherty, ACS, FLMI

Let’s talk about two basic terms used in insurance that many people may not understand: face amount and dividends. Math is not my favorite subject, so I’m a little leery of a word like “dividends” but once you understand, it’s not too bad. We are going to start small and keep building our knowledge of insurance! There is a short quiz at the end, and the answers will be in the April Fraternal Herald.

What Is a Face Amount?
A face amount, or death benefit, is the amount beneficiaries receive if an insured dies.

What are Dividends?
Western may pay their customers an annual dividend when the company’s investment returns, paid claims, and operating expenses in a given year are better than expected. Dividend amounts can be paid to the owner in cash, left on deposit at Western, or used to purchase additional life insurance.
As a concept, you could think of dividends like interest earned. Dividends are determined annually by Western when we analyze all income and expenses. Each year we may pay an appropriate dividend to eligible policies. Dividends are not guaranteed.

Pop Quiz
Courtney has a Whole Life insurance policy. She pays her premiums every month, and the amount her husband would receive if she dies is $65,000. She uses her dividends to buy additional life insurance. This adds to her face amount. After 10 years, the dividend option has purchased another $3,755 of insurance.

What is the original face amount Courtney purchased?
What is Courtney’s current face amount?
What option let her buy more insurance?

Category: insurance

Shannon Daugherty

ACS, FLMI, Member Programs Assistant

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