Participating life insurance policies

Participating life insurance policies

Life insurance that pays dividends to policyholders depending on the company's success as provided by few claims and profitable underwritings and investments.

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.
References in periodicals archive ?
GWL&A is to retain some participating life insurance policies that will be administered by Protective.
In this article, the authors test whether hypotheses derived from agency theory explain the usage of participating life insurance policies by stock insurers.
The use of two different measures of the dependent variable results in two samples of insurers because some insurers have participating life insurance policies in force at year-end, but they did not issue participating policies in the current year.
Hooton noted that default money is likely to wind up in an insurer's with-profit fund, which is held on behalf of customers with participating life insurance policies. "And there has been a lot of fuss recently about the lack of transparency of with-profit Funds," he said.
They use an option valuation framework to show that the expected cash flows associated with participating life insurance policies resolve costs of managerial discretion in stock insurers.
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