Who receives dividends in life insurance policies?

Dividends in life insurance policies are associated exclusively with participating policies. These policies are structured to allow policyholders to share in the insurers' profits generated from investment earnings, mortality experience, and expense management. When a participating policy is issued, it offers the opportunity for policyholders to receive dividends, which can be used in various ways, such as purchasing additional insurance, reducing premiums, or receiving cash payouts.

Participating policies are offered by mutual insurance companies, where policyholders are essentially policyowners and have a stake in the company. The funds contributing to the dividends come from the surplus of the company once claims, expenses, and reserves have been accounted for. In contrast, non-participating policies do not offer dividends, as they do not give policyholders a share in the company's profits.

Understanding this distinction is crucial, as it highlights the advantages that participating policies can offer, particularly the potential for income through dividends. This further reinforces the importance of knowing the type of policy one is purchasing and its implications in terms of financial benefits, illustrating why only participating life insurance policies provide this option.