Dividend Option

What Does Dividend Option Mean?

In the context of insurance, a dividend option refers to the choices available to the insured for receiving dividends under a participating life insurance policy.

Insuranceopedia Explains Dividend Option

Not all life insurance policies pay dividends, but for those that do, the insured has several dividend options for using them. These options may include receiving cash dividends, applying dividends toward the premium, allowing dividends to accumulate with interest, using dividends to purchase additional coverage, or using dividends to buy term insurance.

Whole life policies are the most common type that pays dividends, and the option a policyholder chooses can affect the long-term value of the policy. For example, using dividends to buy paid-up additions increases both the death benefit and the cash value over time, while applying them to premiums lowers the out-of-pocket cost of whole life insurance each year.