More than 2,000 companies in the United States sell life insurance. They range in
size and services from large companies that sell to all segments of the public to
smaller companies that provide coverage tailored to a specific group. Most insurance
companies sell their policies through a network of producers. In three states (New
York, Massachusetts and Connecticut), some savings banks sell life insurance. Some
insurance companies offer policies by mail. Life insurance companies sell either
"non-participating" or "participating" policies.
Most non-participating policies have fixed payments -- premiums -- based on what
the company believes it will cost to provide insurance protection. Some newer non-participating
policies have premiums that may be changed periodically, subject to a maximum rate
stated in the policy. The amount of the premium charged for a non-participating
policy depends on what the company believes it will cost to provide coverage to
the policy holder.
Participating policies, on the other hand, have somewhat higher premiums with a
built in "cushion" to allow for fluctuations in the company's earnings and expenses.
At the end of the year, the company computes its actual costs and refunds to the
policyholder any portion of the premium it does not need. The refund is called the
"policy dividend." Those who buy participating policies can expect their cost to
be "reduced" through periodic policy dividends, which are not taxable.