A dividend is a return to the policyholder for an overpayment of premiums. There is no guarantee of the amount to be paid. This can also be payments made by a corporation for profits that have been earned, and it is paid out on a "per share" basis. Again, there is no guarantee.

For a dividend to be paid the money comes from a corporation's after tax profits. Not every type of share will have the right to earn dividends. Some corporations will reduce or suspend payment of dividends if the corporation is not doing well financially. You could get a dividend by receiving additional shares in the corporation.

Life insurance can pay a dividend if the policy is known as "participating". This participation means that you, the policy owner, get your share of surplus earnings of the company.

A life insurance company earns surplus from interest earned on investments, reduced claims frequency and reduced operating expenses. This is when the company budgets or expects a certain level and the actual presents extra funds to be distributed amongst the shareholders.

You can receive the dividend in one or a combination of the following ways:

  • Cash payment - usually on a quarterly basis.
  • Reduce premium payment on your life insurance policy.
  • Leave on account and build a savings account usually with added interest.
  • Buy another life insurance policy which will match the expiry date of the existing policy that is paying you the dividend.
  • Buy another form of life insurance policy with a guaranteed cash value at the end of the term.

Talk to your insurance broker or agent about what options are available to you and take control of your insurance.