What is a life insurance dividend?

Question: What is a life insurance dividend?

Answer:

A dividend is money paid, usually annually, by a life insurance company to the policyholder of a "participating" life insurance policy. According to the National Association of Insurance Commissioners, life insurance policies that issue dividends allow you, the policyholder, to "participate" in the insurance company's earnings.

Dividends are actually partial refunds of your premium payments. When a life insurance company collects more in premiums than is necessary to maintain an insurance pool to pay current and future claims, the company issues a dividend to policyholders. The size of the dividend paid generally depends on the insurance company's investment returns and expenses. Life insurance dividends are not guaranteed.