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Some companies issue participating policies that pay dividends.
Premiums of participating policies include a safety factor to cover unexpected occurrences during the year. At year-end, the insurer analyzes its actual costs and earnings, and if all of the premium paid was not needed, the surplus is returned to policyowners as dividends. No, you have several options. You may receive dividends as cash, use them to reduce your premiums or leave them to accumulate interest. And, unless your policy is a term insurance plan, you also may use dividends to purchase additional paid-up life insurance.