What do dividends in insurance policies represent?

Dividends in insurance policies represent a share of the insurer's earnings returned to policyholders. This is based on the principle that mutual insurance companies, which are owned by their policyholders, may distribute a portion of their profits back to those policyholders in the form of dividends. The amount of dividends paid is not guaranteed, as it depends on various factors including the company's overall financial performance, claims experience, and investment returns.

This sharing of profits reflects the collaborative nature of mutual companies, where policyholders collectively benefit from the company's success. Hence, when policyholders receive dividends, it serves as a recognition of their participation in the insurer's growth and profitability. It's important to note that while dividends can be a positive aspect of being a policyholder, they are distinct from guaranteed returns, which are explicitly promised in certain types of insurance contracts.