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  • What is an insurance dividend?
  • February 28, 2014
  • what is an insurance dividendBy LifeQuotes.com

    Disaster mustn’t need to strike in order for you to collect money from your insurance company. These annual payouts, called dividends, can occur under happier circumstances.

    A mutual insurance company, which is owned by its policyholders, pays dividends on policies.  Non-mutual insurance companies may pay an insurance dividend on participating policies, which are contracts that pass along surplus money to policyholders.

    When a company pays out fewer claims than expected, or spends less than anticipated on agent commissions, office expenditures and advertising, current policyholders may receive a dividend or part of their death benefit.

    For example, if the insurer calculates its premiums assuming that it will earn 4 percent interest on its reserves, and the company actually earns 8 percent, the participating policyholders could receive a dividend.

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