Annual Dividend - Insurance

AAA

DEFINITION of 'Annual Dividend - Insurance'

In the insurance industry, a yearly payment given by an insurance company to a policyholder. Annual dividends are most commonly distributed in conjunction with life insurance and disability income insurance policies. Insurance companies may pay their customers an annual dividend when the company's investment returns, experience (paid claims) and operating expenses in a given year are better than expected. Dividend amounts change each year and are not guaranteed.


Annual dividend calculations are based on the individual insurance policy's guaranteed cash value, the policy's annual premium, the company's actual mortality and expense costs and the dividend scale interest rate. Insurance companies need to make sure they earn enough in premiums each year to cover their expenses, reserves and contingencies, but they may choose to share a surplus with their customers. Policyholders who have borrowed against their policies may receive reduced annual dividends while the loan is outstanding.

BREAKING DOWN 'Annual Dividend - Insurance'

Annual dividends can be applied to annual premiums to reduce the customer's cost of carrying the policy. They can also be applied to increase the policy's value, used to purchase additional insurance, be distributed as cash or used to repay a policy loan. With some exceptions, dividends are generally considered a return of premium and so are not taxable as income.

RELATED TERMS
  1. Group Life Insurance

    Life insurance offered by an employer or large-scale entity (i.e. ...
  2. No-Load Life Insurance

    A type of life insurance that charges much lower fees and expenses ...
  3. Universal Life Insurance

    A type of flexible permanent life insurance offering the low-cost ...
  4. Whole Life Insurance Policy

    A life insurance contract with level premiums that has both an ...
  5. Permanent Life Insurance

    An umbrella term for life insurance plans that do not expire ...
  6. Term Life Insurance

    A policy with a set duration limit on the coverage period. Once ...
Related Articles
  1. Insurance

    How Much Life Insurance Should You Carry?

    Learn how much - if any - insurance you really need.
  2. Options & Futures

    Permanent Life Policies: Whole Vs. Universal

    If you're looking for life-long security, choosing between these two is the key.
  3. Retirement

    Variable Vs. Variable Universal Life Insurance

    Do you know why you might need one policy versus the other? Read on to find out.
  4. Options & Futures

    How To Avoid Taxation On Life Insurance Proceeds

    Decrease the value of your taxable estate and prevent the tax man from getting you one last time.
  5. Retirement

    Life Insurance: How To Get the Most Out Of Your Policy

    There are many benefits to owning a life insurance policy - if you get the right one for you.
  6. Home & Auto

    Life Insurance Clauses Determine Your Coverage

    Understanding these key parts of your policy will help you to ensure that your family will be covered.
  7. Insurance

    Life Insurance: Putting A Price On Peace Of Mind

    Would your death leave loved ones financially stranded? Find out how to ease your mind and keep them protected.
  8. Insurance

    Who is a Beneficiary?

    A beneficiary is a person or entity that receives funds, assets, property or other benefits from a trust, will, or life insurance policy.
  9. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  10. Insurance

    Top 5 Car Insurance Companies in Florida

    Learn which car insurance companies lead the Florida market in terms of market share and new premium dollars, and discover which companies are growing fastest.
RELATED FAQS
  1. Do penny stocks pay dividends?

    Because of the small market capitalization and revenues typical of most penny stocks, there are very few that offer dividends. ... Read Full Answer >>
  2. How do dividend distributions affect additional paid in capital?

    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>
  3. When does the holding period on a stock dividend start?

    The holding period on a stock dividend typically begins the day after it is purchased. Understanding the holding period is ... Read Full Answer >>
  4. What level of reserve ratios is typical for an insurance company to protect against ...

    In the United States, and most developed nations, regulators impose required statutory capital reserve ratios on insurance ... Read Full Answer >>
  5. What risks do I face when investing in the insurance sector?

    Like all equity investments, insurance companies present investors with market risk. Insurance companies, like banks, also ... Read Full Answer >>
  6. What are the main factors that impact share prices in the insurance sector?

    The main factors that impact share prices in the insurance sector are interest rates, earnings and actuarial risk. In the ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  2. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  3. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  4. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  5. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
  6. Widow's Exemption

    In general terms, a widow's exemption refers to the amount that can be deducted from taxable income by a widow, thereby reducing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!