Participating policy

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Participating Policy

In insurance, a policy (usually a whole life policy) that pays dividends. The dividends are a portion of the insurance company's profits and are paid to the policyholder as if he/she were a stockholder. However, the policyholder has a variety of options on what to do with the dividends. He/she may take the payment in cash, just like a stock. Alternately, he/she may apply the dividends to the policy premium, reducing his/her cost. Finally he/she may place the money with the insurance company, which treats the dividends like a savings account, accruing interest for the policyholder. Most participating policies pay a final dividend at the policy's maturity, and some have a guaranteed dividend, which is determined in the insurance contract. More recent participating policies have more complicated structures, such as including market value reductions on dividend withdrawals. This has led critics to complain that participating policies are overly complicated without providing the policyholder much he/she cannot have in other investment vehicles. In the United Kingdom, participating policies are called with-profits policies, and their dividends are called bonuses.

Participating policy.

When policyholders have what is called a participating policy from a mutual insurance company, they are eligible to receive dividends based on the company's financial performance.

When claims are low and the company's investments perform well, dividends tend to rise. On the other hand, when claims are high and investment returns slump, dividends are likely to fall.

The dividends on a participating policy aren't guaranteed, so they may not be paid every year. Unlike the dividends paid to a company's shareholders, participating policy dividends are considered a return of premium. As a result, the dividends are not taxed as income.

Dividends may typically be paid out as cash, as additional insurance coverage, or may be used to reduce policyholders' premiums or repay policy loans. Rules vary from company to company.

References in periodicals archive ?
6 million participating policies, a 3% increase over the total dividend payout for 2008.
Participating policies pay dividends based on deviations of actual claims, interest, and expenses from the assumptions built into the premium, thus allowing policyholders to share in the insurer's aggregate profits (Black and Skipper, 2000).
Northwestern Mutual, whose products include investment, life and disability products, sells mostly participating policies.
It also applies to stock life insurance enterprises that apply SOP 95-1, Accounting for Certain Insurance Activities of Mutual Life Insurance Enterprises, to account for participating policies that meet the criteria of paragraph 5 of SOP 95-1.
On participating policies, dividends typically reflect rate-of-return changes and universal life policies already are designed to accommodate such changes.
We are pleased to be able to continue paying dividends that add value to our participating policies above and beyond the guarantees provided," said James D.
announced that it plans to pay an estimated $614 million in dividends on participating policies in 2008.
The aim of this section is to set up a simple valuation model for the liabilities of a life insurance company implied by participating policies.
Participating policies probably tend to be older and smaller, and they tend to use portfolio vs.
Life insurance policy dividends are based on the performance of participating policies, including investment returns, mortality, persistency, and expenses, among other factors, and are therefore not guaranteed.
9 percent on most of its eligible participating policies, the company's highest rate in five years.
Such contracts are called participating policies and are fairly common for many types of insurance.

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