Glossary > Insurance > Life Insurance > Whole Life Insurance

Dividends

In the context of insurance, such as Life Insurance or Whole Life Insurance, dividends are payments made by an insurance company to eligible policyholders. These payments are a portion of the company's profits or surplus that are distributed back to policyholders, usually on an annual basis. Policyholders who receive dividends typically have participating policies, meaning they share in the financial performance of the insurance company.

Example #1

For example, if you have a Whole Life Insurance policy that is classified as participating, you may receive dividends from the insurance company based on the company's profits and performance.

Example #2

Another example is if you have a Term Life Insurance policy that is non-participating, you would not be eligible to receive dividends as these policies do not share in the company's profits.

Misuse

An example of misuse of dividends in insurance would be if an insurance company fails to appropriately allocate or distribute dividends to policyholders who are entitled to receive them. This misuse is significant because it can result in policyholders being deprived of their rightful share of the company's profits, impacting the value and benefits they should receive from their policies. As a consumer, it's essential to ensure that the insurance company is transparent and fair in the allocation of dividends to policyholders.

Benefits

The benefits of dividends for policyholders include the potential for increased policy values, cash value growth, or the ability to use dividends to offset premium payments. For example, receiving dividends from a Whole Life Insurance policy can help policyholders build cash value within the policy over time or even provide an option to use the dividends to reduce the out-of-pocket premium costs.

Conclusion

Understanding dividends in insurance is crucial for policyholders as it allows them to grasp the financial rewards associated with owning participating policies. By being aware of how dividends work and how they can benefit from them, consumers can make informed decisions about their insurance coverage and maximize the value of their policies. It's vital for consumers to ensure that insurance companies fulfill their obligations regarding dividends and provide fair and transparent practices.