Policy Dividend

What Does Policy Dividend Mean?

A policy dividend is the amount given to policyholders (usually of certain life insurance policies) by an insurance company every year after meeting certain financial requirements.

The amount is decided by the insurance company’s board of directors and is in part based on the financial performance of the company. It is, therefore, neither fixed nor guaranteed. Only owners of participating life insurance policies are eligible to receive these payouts, since term and most other non-participating contracts pay no dividends at all. The policy’s cash value and premium determine the amount of the dividend.

Insuranceopedia Explains Policy Dividend

An insurance company can afford to pay dividends to its policyholders if it has positive earnings that year. The dividends that are distributed are surpluses from the operational costs and expenses of the company. How well the insurance company has performed will determine the amount of the dividend, which explains why the policy dividend varies every year. Whole life policies make up most of the dividend-paying market, which is part of why whole life insurance rates run higher than term premiums.

The insurance company may not distribute it as cash money. Instead, it may be used as payment for a loan from a policy, payment for the next premium, or payment for another insurance purchase.