Participating policy


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Related to Participating policy: reversionary bonus

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 ?
Pottier, 2001, Agency Theory and Participating Policy Usage Evidence From Stock Life Insurers, Journal of Risk and Insurance, 68(4): 659-683.
An inspection of the "building blocks" of such a participating policy reveals that we can regard these contracts as a sequence of embedded options written on the asset portfolio A (which, from now, we call the reference portfolio), whose market value can be determined within the classical contingent claim pricing framework.
This section analyzes the structure of the claims of the policyholder and the equityholders implied by the specification of the participating policy described in the section "Model of a Life Insurance Company With Participating Contracts" (in particular by Equations (1) and (2)), beginning with the specification of the liability of the company toward the policyholder.
55 billion has been sanctioned for entitled participating policy owners who have purchased whole life insurance.
As part of a participating policy, the amount that can be paid out when there is a chronic illness can increase should the buyer purchase additional insurance (i.
The innovation in this article is that the authors allow for an endogenous level of participation, whereby the insured can choose a convex mixture of a fixed-premium contract and a participating policy.
Consider now a fully participating policy with a premium equal to the ex post average indemnity paid by the insurer.
MetLife's recently introduced Promise Whole Life(sm) policy is designed, priced, and filed as a participating policy that is eligible to receive dividends in approved states.
The authors' results are consistent with the argument that participating policy usage is dictated by the trade-off between the mitigation of the contracting costs of risk shifting and underinvestment, and the exacerbation of the incentive conflicts between managers and shareholders.
By a participating policy we refer to a contract where the insured is entitled to a share of the surplus if the realized interest rate during the insurance period is above the assumed interest rate.
To rebuild total capital that declined as a result of realized investment losses over the past two years, the company reduced its participating policy dividend scale.
There exists a participating policy such that the incentive compatibility and financing conditions are jointly satisfied.

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