What is a dividend? To many people, they think its free money. But they don't know the difference between a dividend in a life insurance policy versus a dividend in investments. To them, its all the same. Here, I'm going to define these two types of dividend.
Dividend in a life insurance policy: This is where an insurance company refunds the excess amount of premiums you paid into the policy. That means you are already overpaying your premiums in the first place. So its basically you are getting your change back. For example, let's say you bought something at a store and the total cost is $25. You pay $50, so the cashier returns you $25. Well, in life insurance, they don't return the change back to you immediately, they invest it in their own accounts and then give it back to you later in the year.
Dividend in investments: This is when an investment company makes profits and pay a portion of these profits to shareholders. This is called a dividend. Remember, anything related to investments are not guaranteed. If you do receive a dividend, you have the choice of keeping it in your pocket or re-invest it to buy more shares. You will pay taxes on the dividend, unless your investments are in tax-deferred accounts such as IRAs.
