Life Insurance Glossary

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Additional term insurance dividend option

A life insurance policy dividend option under which policy dividends are used as a net single premium to purchase one-year term insurance.

Also called the additional insurance option or the fifth dividend option.

Automatic dividend option

For a particular life insurance policy, the dividend option that applies if the policyowner does not choose an option. The most common automatic dividend option is the paid-up additional insurance dividend option.

See dividend options.

Dividend

(1) A refund of excess premium paid to the owner of an individual participating life insurance policy. Such a dividend is paid out of an insurer’s divisible surplus. Also called a policy dividend or a policy owner dividend. (2) The portion of a group insurance premium that is returned to a group policyholder whose claims experience is better than had been expected when the premium was calculated. Also called experience rating refund, experience refund, and retroactive rate reduction. (3) A periodic payment paid by a business to a stockholder. A dividend paid in cash is called a cash dividend. A dividend paid in the form of additional shares of stock is called a stock dividend.

Dividend accumulations

Amounts that result when a policyowner decides to leave policy dividends on deposit with an insurer.

Dividend options

Several alternatives that participating policyowners can choose from to indicate the manner in which they want to receive their share of the insurance company’s divisible surplus.

See additional term insurance dividend option, automatic dividend option, cash payment dividend option, dividend accumulations, and paid-up additions.

Paid-up additional insurance dividend option

The dividend option under which the insurer uses each policy dividend to purchase paid-up additional insurance on the insured’s life.

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