Dividend Definition
Dictionary of Insurance Terms and Definitions
People who hold participating life insurance are entitled to receive dividends from the life insurance company.
Most readers know the word "dividend" from the context of stock companies (companies owned by stockholders): when the company makes a profit, it distributes a portion of the profits to its shareholders by paying them dividends. Dividends in life insurance function similarly in most (but not necessarily all) cases.
That doesn't mean that you have to own stock in your life insurance company in order to get dividends, though. All or nearly all life insurance companies that sell participating life insurance policies are "mutual companies." That means that the policy owners are also the owners of the company. (In cases where stock (not mutual) companies choose to sell participating life insurance, you still don't need to own stock to receive dividends, but the company will have a different machinery than the one described here to create and distribute its dividends.)
In life insurance, dividends are treated as a refund of your premium (usually only a partial refund), and this makes them different from ordinary dividends. Being a refund means that they are not taxable as income!
Dividends can be distributed in any form, including cash. Often, they are distributed as cash value (which augments the equity of your policy) or as payments against future premiums.
