Some insurers, particularly mutual insurers, offer dividends to policyholders if the sale of car insurance has been profitable to them.
Mutual insurance companies pay dividends on policies. With mutual insurance companies, the ownership is with the policyholders, who receive the dividend when the company does well. Non-mutual insurance companies, such as publicly traded stock companies and mutual holding companies may also pay dividends on what are termed participating policies.
Not all insurance companies pay dividends, nor do all insurance policies. Whether or not you receive a dividend on your insurance policy depends typically on certain factors that affect the insurance company. The main factors that insurance providers that give out policyholder dividends look at are their claims, expenses and then their investment/financial performance.
An insurance company predicts how many claims it will have each year by examining its claim history. If your insurance carrier pays out fewer claims than anticipated, you may receive a dividend. As with any business, there are expenses for running an insurance company. If your insurance carrier spends less than they predicted, it helps the chances of a dividend being received by policyholders.
A company also examines its investment and financial performance. As you may know, insurance companies invest money to try up their reserves. If its investments perform favorably, then the policyholders have a better chance that a dividend will be given
If on the other hand, an insurance company does not perform well financially in these three areas (meaning they have more claims, more expenses and poor investment performance) then it is less likely that a dividend will be paid out.
To receive a policy dividend, you must be a policyholder when your insurance company declares a dividend. So if you bought a policy from your insurer in September, and the insurer declared a dividend in June, you should not expect to get a check. Most insurance companies pay dividends to policyholders just before their renewal dates come up.
If you are insured by a stock subsidiary of a mutual insurance company, you may not receive dividends. Not even all mutual insurance companies pay dividends so if it is essential to you that dividends may be paid out to you if your company is doing well ask if dividends are paid out. Some mutual companies will charge lower premiums if they do well instead of paying dividends.
If your insurance company issues you a dividend, you can receive it in check form or put it towards your premium amount. Luckily your claim record does not affect your ability to get a dividend. So if you have accidents and tickets on your driving record, you would still receive a dividend just as a person with a clean driving record and no claims against their policy would.
If you want your insurance through an insurance company that pays out policyholder dividends, ask the insurance agent about this when getting your quote. Ensure you are getting information about a policyholder dividend, not a stock dividend.
The policyholder dividend as we explained above allows you to receive money if the insurance company has done well financially (has lower claims and expenses and done well with investments basically). A stock dividend is one given by a publicly traded stock company. To receive this type of dividend from an auto insurance company, you would need to buy stock and thus be a stockholder and do not need to be a policyholder with that insurer to get a stock dividend.
Many insurance companies offer dividends but to name a few — USAA, Progressive, State Farm Mutual Automobile Insurance Company, Texas Mutual Insurance Company, New Jersey Manufacturers Insurance Company and Amica. Many insurance companies that offer dividends offer both a dividend insurance policy and a non-dividend policy type.
— Michelle Megna contributed to this story.
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Laura Longero is an insurance expert and Executive Editor at CarInsurance.com, where she specializes in helping consumers navigate the complexities of the financial and insurance industries. She has 15 years of experience educating people about finance and car insurance. Prior to joining CarInsurance.com, she worked as a reporter and editor at the USA Today Network. Her expertise provides readers with practical guidance, helping them make informed choices about their financial and insurance needs.
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