Dividends vs. Dividends

Helping students study for the exam, I've noticed a big area that leads to confusion, and maybe a few wrong answers, is that of the differences between Stock Insurers, and Mutual Insurance Companies.

The problem is so many similar phrases are used for each topic, it's easy to "cross-your-wires".  Here's a lot of what you need to know about this topic.


Stock Insurers                    Mutual Insurers
owned by ...
Shareholders                                  Policyholders
they want Profit                              they want Refunds of any over-payment
                                                           (as an owner / client, they wouldn't over charge themselves)
These profits are called                These refunds are called 
Stock DIVIDENDS                           Policy DIVIDENDS
As Profit they are                            As a Refund, they are
TAXABLE                                         NOT TAXABLE


The Clients...
Have NO VOTING RIGHTS,          Have VOTING RIGHTS,
NO OWNERSHIP,                           An OWNERSHIP STAKE, 
NO RIGHT TO PROFITS                A RIGHT TO SURPLUS FUNDS

So they are called...                        So they are called... 
NON PARTICIPATING                    PARTICIPATING POLICIES (par)
POLICIES (non-par)


                                      < < <  --------  When a Mutual Company switches to
                                                             become a Stock Insurer, it's called ...
                                                              DEMUTUALIZATION

                                                              These Dividends are...
                                                               NOT TAXABLE &
                                                               NOT GUARANTEED

                                                              The 5 Dividend Options:
                                                                     O = one year term (more ins.)
                                                                     C = cash
                                                                     R = reduce next / current premium
                                                                     A = accumulate with / at interest
                                                                     P = paid-up additions (more ins.)
                                                                                  "Oh CRAP"

* Rarely, but it's possible, you might see Policy Dividends referred to
as Divisible Surplus, or Earnings Surplus.