Dividends

Some insurance policies refund part of the premiums to policyholders in the form of dividends. Such policies are called participating policies. An insurance company pays dividends if the money it collects in premiums exceeds the amount needed to pay benefits and administrative costs.

Dividends also may include a share of the profits the company earns on investments made with premium funds. Dividends may be paid on many types of insurance. But they are most commonly paid on life insurance. Policies that do not pay dividends are known as nonparticipating policies.

An owner of a participating policy may receive the dividends in cash or allow them to accumulate with the insurance company, which pays interest on the amount. A policyholder may also use the dividends to help pay the premiums on the policy or to purchase additional insurance.