What does the term 'dividend' refer to in the context of mutual insurance companies?

In mutual insurance companies, the term 'dividend' specifically refers to an optional benefit that policyholders may receive based on the financial performance of the company. Unlike a guaranteed profit share, dividends in this context are not promised but are contingent upon the company generating surplus profits after accounting for its expenses and claims.

Policyholders can choose to receive these dividends in various forms, such as cash, in premium reductions, or by reinvesting the dividend into paid-up additions on their policies. This flexibility in handling dividends is a key feature for policyholders, allowing them to determine how best to benefit from their membership in the mutual insurance company. The concept of dividends in mutual insurance emphasizes the cooperative nature of such companies, where policyholders are also stakeholders.