People get insurance policies because they acknowledge the possibility and the existence of risk and they would want such risk to be managed by a company that would not only return their capital investments to them at a future time, but also the corresponding earnings.

Insurance companies are known as risk managers who get money from their policy holders in the form of premiums. Most insurance companies invest these premiums and get surplus profits if the accounts are properly managed by them or their fund managers. Failure to properly manage the premiums they invested is also one of the reasons why some insurance companies go bankrupt and are no longer able to pay the claims of some policy holders.

There are insurance companies that give out or distribute dividends to their policy holders when they do get surplus profits. Insurance companies that distribute profits to their policy holders are known as mutual companies. These insurance companies consider their policy holders as their stockholders because it is through them that they get the premiums which are then invested. Most companies do not, however, guarantee the payment of dividends as this will depend on how their investments fare in the investment market.

Dividends are paid when there are surplus funds. These surplus funds come from the company's investment earnings, mortality savings and their operational savings. Mortality savings happen when the premium or life insurance package taken by the insured is more than the actual death claims paid by the company. Insurance companies are required to maintain reserves for death benefit claims. When the profit they get from their investments is more than the required reserves, then they earn savings. The operational savings happen when the insurance company spends less in terms of the expenses necessary to sell insurance products.

Insurance companies pay or distribute dividends to their policy holders not because of sheer generosity but because it also entitles them to a tax break since the dividends are subtracted from their income. With lesser income, the insurance companies will be paying less tax.

Insurance dividends are different from stock dividends primarily because the insurance dividends are considered return of premiums paid by the policy holders while stock dividends are issued by corporations to their stockholders when they cannot issue monetary dividends. Publicly listed corporations issue dividends to their stockholders to assuage them and keep them from withdrawing their stocks.

In most cases, people who borrow from their policy in the form of loans, get higher dividends when the company declares and distributes them. Once the insurance company declares a dividend, the policy holder can choose to convert his dividends into cash, allow them to accumulate or use them to pay the premium, or pay an existing policy loan.

Insurance dividends are generally exempted from tax except when the dividends received are more than the premiums that have been paid. The dividend gets taxed though, if it is converted to cash. Most insurance agencies distribute dividends by sending dividend certificates to policy holders. Most often, these dividends are so meager it would be more practical to allow them to accumulate and be withdrawn when the policy has matured. However there are policy holders who opt to convert their dividends into cash, believing that they had better spend their money while they still have the opportunity to do so,

To qualify for an insurance dividend, you must already be a policy holder at the time the declaration to pay dividends has been made.

Most insurance agents do not really explain very important matters that should be explained to insurance policy holders. Most of them get confused and do not know what to do when they receive their dividend certificates. Before getting an insurance policy, better know all the nuances of the policy so you would know what you are getting into and what you are getting out of the insurance policy. This way, you would be able to maximize the benefits that you would be receiving through the policy.

Remember that for every insurance policy you get, you may be entitled to benefits. However, you will only be able to enjoy these benefits if you know what they are and how to avail yourself of them. So know the common terms of your insurance policy and who knows, you may just be entitled to a dividend sooner than you think.

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