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 ?
* Accuracy: In the old days, employees completed paper applications for each participating insurance company.
If participating insurance were illustrated, the premium might be higher, but dividends would likely be available.
Recommendation: To improve oversight of the WYO program and compliance with program requirements, the Secretary of Homeland Security should direct the Under Secretary of Homeland Security, FEMA, to systematically track insurance companies' compliance with and performance under each component of the Control Plan and ensure centralized access to all the audits, reviews, and data analyses performed for each participating insurance company under the Control Plan.
Participating insurance companies in the new public program will be required to report data to ensure that standards for quality, health information technology and administration are being met.
The Exchange would serve as a watchdog group by making rules and standards for participating insurance plans.
I refer to the principle of "participating insurance," where dividends are paid on certain gains achieved by the insurers.
Stock insurers can reduce or eliminate agency conflicts between policyholders and stockholders by issuing participating insurance. Despite this benefit, most stock companies don't offer participating contracts.
Funds are provided by participating insurance companies who, in turn, receive premium tax credits equal to 100 percent of the amount of their investment, interest income, and in some cases an opportunity to participate in the profits of a CAPCO.
The Senate bill reimburses participating insurance companies for losses exceeding the product of $10 billion multiplied by each company's market share.
It is a private institute funded by grants from participating insurance companies.
The reports will be based on actual policies from more than 50 participating insurance companies.
AICPA SOP 95-1 provides accounting guidance for participating insurance contracts of mutual life insurance enterprises with the following characteristics:

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