Dividend Policy Law and Legal Definition

Dividend policy is a life insurance policy in which an annual dividend policyholder receives his/her proportionate part of surplus fund each year in cash, as a credit upon or abatement of his/her next premium, or in the form of paid-up insurance purchased by the dividend. [New York Life Ins. Co. v. Edwards, 271 U.S. 109, 115 (U.S. 1926)].

It is issued under a plan whereby each policyholder pays annually in advance a fixed sum which, when added to like payments by others, will create a fund larger than necessary to meet all maturing policies and estimated expenses. At the end of each year the actual insurance costs and expenses incurred are ascertained. The difference between their sums and the total of advance payments and other income then becomes the surplus fund for immediate pro rata distribution among policyholders as dividends or for such future disposition as the contracts provide.