Definition and Meaning
Dividend Additions in life insurance refer to a policyholder’s option to leave dividends paid out by their insurer within the policy. These dividends are then used to purchase paid-up additional insurance, which effectively increases the policy’s death benefit and cash value over time.
Etymology
The term dividend traces back to the Latin word dividendum, meaning “thing to be divided.” In the context of life insurance, it refers to surplus earnings distributed to policyholders. Addition comes from the Latin additionem, meaning “an adding to.”
Background
Dividend Additions emerged from traditional participating life insurance policies. These policies are named “participating” because policyholders participate in the company’s performance through dividends, distinguishing them from non-participating policies that do not pay dividends.
Key Takeaways
- Sequential Benefits: Dividends are used to buy additional single premium insurance, increasing coverage.
- Compounding Advantage: Enjoy the power of compound interest as the added insurance grows.
- Comprehensive Flexibility: Provides policyholders with the option to reconfigure their insurance strategy.
Differences and Similarities
Similarities:
- Both Dividend Additions and cash payouts increase the benefit potential of an insurance policy.
- Each option stems from surplus earnings of the insurer.
Differences:
- Dividend Additions: Enhance policy coverage over time.
- Cash Payouts: Offer immediate liquid benefits to the policyholder.
Synonyms and Antonyms
Synonyms:
- Participating Dividend
- Paid-up Additions
Antonyms:
- Non-Participating Dividend
- Cash Surrender
Related Terms
Participating Policies: Life insurance policies that pay dividends based on the insurer’s profitability.
Cash Value: The savings component in life insurance that accumulates over time.
Single Premium Life Insurance: A policy paid for with a single lump sum premium.
FAQs
Q: Do Dividend Additions increase my premium? A: No, they are funded using dividends, not additional out-of-pocket premiums.
Q: Can I access the cash value of the additions? A: Yes, the cash value can often be borrowed against or withdrawn under certain conditions.
Exciting Facts
- Dividend Additions can significantly enhance the face value of the life insurance policy over time without increased premiums.
- They offer a tax-deferred way to grow additional life insurance coverage.
Quotations
“A dividend policy is not an accident. It’s a deliberate economic strategy.” — Peter Lynch
Proverbs
“Compound interest is the eighth wonder of the world.” — Albert Einstein
Humorous Sayings and Clichés
“Knowing dividend additions might give you the best form of growing insurance—one that even the most forgetful insurer can’t keep out of your reach!”
Government Regulations
Regulations set by the National Association of Insurance Commissioners (NAIC) oversee how life insurance dividends and surplus earnings should be managed and communicated to policyholders.
Suggested Literature
- “The Life Insurance Handbook” by Josiah Raleigh
- “Participating Life Insurance: Concepts & Analysis” by Frederick Adams
- Relevant Insurance policies and brochures
Authored by: Alex P. Greaves Published Date: 2023-10-07
“Reading about insurance can’t be as exciting as skydiving, but it will certainly cushion your financial landing!”
