Use Dividends to Pay Your Policy Premiums
Pros and Cons
There are several options available for paying your New York Life permanent life insurance premiums. You can pay premiums by an automatic monthly bank draft (this arrangement is called Check-O-Matic); you can ask to be billed either annually, semiannually or quarterly; and, in some circumstances, you can pay by government allotment or by regular deductions from your salary called voluntary payroll deduction.
New York Life offers several premium payment options. One option is called "Premium Offset Plan" or "POP". Under POP, your premium or part of it is paid with the policy's own built-up values. These "values" are the dividends that accumulate within your policy. The basic idea is that your premiums are paid in whole or in part each year by using a combination of your current dividend and your accumulated dividend values. As long as these dividend values are available, you are able to pay your premiums with no cash outlay.
Premium Offset Plan (POP)
When current dividend values plus anticipated future dividends are sufficient to cover your entire future scheduled premiums, POP is available to you1. The chief benefit of this arrangement is that once you elect it, you do not have to pay your premiums with out-of-pocket funds, as long as there are sufficient dividends to continue to fund this arrangement. A reduction in the applicable dividend scale may result in further out-of-pocket cash premiums being made necessary.
1 Dividends are based on the policy's applicable dividend scale or interest crediting rate which is neither guaranteed nor an estimate of future performance.
Partial POP (PPOP)
PPOP allows you to select a fixed dollar amount of premium which is billed to you at scheduled intervals. You elect to pay part of your scheduled premium with out-of-pocket funds and the balance of your premium is paid through available policy values.
For example, if your total premium is $300 per quarter, you may choose to pay $200 from out-of-pocket funds and the remaining $100 will be taken from your policy values. With this option, your out-of-pocket payments may remain constant, assuming dividends continue to be sufficient to support this premium paying method.
This option is attractive when there are not enough dividends to pay your full premium. Partial POP is available to customers being billed annually, semi-annually, quarterly, or by Check-O-Matic arrangement. PPOP is not permitted through government allotment or by regular deductions from your salary.
Signing up for PPOP will terminate previously elected billable OPP or Check-O-Matic OPP arrangements. You will still be able to take advantage of this valuable rider to your policy, but you will be required to make lump-sum payments. Special note for policies with modified premiums (i.e., those policies where the premiums are not level): For those policyowners who have policies with modified premiums, premiums can fluctuate and therefore affect your PPOP arrangement. A fluctuating premium will result in a change in the dividend amount needed to pay the premium. If there are not enough dividends to cover the balance of the fixed dollar premium amount you elected to pay, you will need to increase the amount of out-of-pocket premium you pay. We will notify you and you will need to sign up for a new PPOP arrangement with a higher scheduled premium. If you decide not to do this, your initial PPOP arrangement will be terminated and the full premium will be due.
Some Things to Consider
When you select any of the POP options, your out-of-pocket premium expenses will be reduced or eliminated while the face amount shown in your policy remains the same. Once a POP payment option is selected, it will stay in force as long as dividend values are sufficient to keep the plan in effect. If your policy dividends ever fall below the amount necessary to sustain the POP option you selected, you will be notified in advance. In most cases, the POP option will be terminated and you will be billed for the full amount of your premium.
Customarily, a POP option is meant to be permanent. But there are many circumstances that can make a policy "come off POP" or "un-POP". Either you or New York Life can take actions that lead to the termination of the POP option and the resumption of out-of-pocket premium payments. Here are some of the things that you could do to cause a "POP" policy to "un-POP":
- you could withdraw dividend values
- you could take a policy loan or increase a loan
- you could change your dividend option
- you could add a policy rider or supplementary benefit
- if you increase the amount of your coverage
- you could change the ownership or assign your policy
On the other hand, if New York Life were to take any of the following actions, it could also cause your policy to "come off POP":
- the Company could decrease the current dividend scale
- the Company could decrease the interest rate it credits on dividends left on deposit
- the Company could increase the policy's variable loan interest rate, which would increase the amount of loan interest due each year, if there is an outstanding policy loan
In a word, the POP or PPOP arrangement ceases when the policy experiences a dividend shortfall. It does not matter whether this shortfall is caused by certain actions of the policyowner perhaps a new policy loan or an increase in scheduled premiums or by certain actions of New York Life perhaps a reduction in the current dividend scale. Dividends paid on permanent life insurance are not guaranteed. And because dividends are not guaranteed, neither is the POP or PPOP arrangement.
There is no magic in the POP arrangement. It doesn't mean that you don't have to pay your full policy premiums; it simply means that your policy pays all or part of those premiums from its own dividend values. When, for whatever reason or combination of reasons, those values have run out, the POP arrangement is terminated. At that point, you would resume out-of-pocket premium payments to keep your policy in force. (Currently, New York Life sends a warning letter before a policy is anticipated to "come off POP".)
You might think of the POP arrangement as living off the values of your policy. When you utilize a POP option, you prevent your policy values from growing as quickly (and, consequently, as much) as they would have otherwise grown if you had paid your premiums with out-of-pocket funds; you can even deplete them. Those values can even be depleted when other actions (for example, new policy loans) are taken that reduce policy values. If your objective is to increase the values of your policy, you'll want to use out-of-pocket funds to pay your premiums and/or purchase paid-up additions.
"To POP or not" is a complex question. Even when intended to be permanent, POP can occasionally turn out to be temporary. And while a policy is on POP, it is living off its dividends and can not grow as quickly (and, consequently, can not grow as much) as if new money were added to it.