Dividends
Premiums for participating policies are based, normally, on fairly conservative mortality, interest, and expense assumptions. The insurer then may recognize more favorable experience through the payment of dividends. While most participating policies include an illustration of dividends, the actual dividends paid are not guaranteed. If future mortality, interest, and expenses are more favorable, dividends paid may be higher than those illustrated. The term dividend, as used with life insurance, should not be confused with the same term used to refer to earnings on shared stock.
Dividends may be used in several ways. Columbian Mutual Life dividend options include cash, paid-up additions, accumulations, and premium reduction.
The cash dividend option is when the annual dividend is paid directly to the policyowner.
With the paid-up addition dividend option, the annual dividend is used to purchase additional death benefit.
Accumulating dividends are left with the company to grow at an interest rate specified in the contract.
Accumulated dividends may be withdrawn at any time by the policyowner.
The premium reduction dividend option has the dividend payable at the end of one year applied to reduce the premium for the following year.
Dividend options can be defined as participating with dividends payable, participating with no dividends anticipated or nonparticipating and will vary by product and Company.