Dividend (Life Insurance)

In the context of participating life insurance policies, a dividend is a return of a portion of the premium paid to the policyholder when the insurer's actual mortality, expense, and investment experience is more favorable than projected. Dividends are not guaranteed — they are declared annually by the insurance company's board and reflect the carrier's actual performance relative to its assumptions. Policyholders can typically use dividends in several ways: take as cash, apply toward premiums, purchase paid-up additions to increase coverage, or accumulate at interest. Mutual insurance companies — owned by policyholders rather than shareholders — tend to have a stronger track record of dividend payments, though past performance does not guarantee future results.