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 ?
The Exchange will act as a watchdog group and help reform the private insurance market by creating rules and standards for participating insurance plans to ensure fairness and to make individual coverage more affordable and accessible.
However, when the policyholder participation fraction is high, the fair-return premium is so large that the policyholder always prefers fully participating insurance from the mutual company.
The partnership started offering long-term care insurance policies through participating insurance companies in the early 1990s.
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The technology provides real-time predictive scores based on the online presence of participating insurance customers.
The contract documents, the participating insurance companies and their sales as well as the dates for the notification of contract award are available on the portal GWQ Service Plus AG http://vergabeportal.
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The survey compared prices charged on policies underwritten by 36 participating insurance companies during the fourth quarter of 2009 to pricing for the same coverage during the fourth quarter of 2008.
Pharmacists initially had to spend hours on the phone or at their computers, trying to work out payment with the federal government and the participating insurance companies.

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