What is the term for a plan that allows policyowners to receive a return of excess premiums?

The term that refers to a plan allowing policyowners to receive a return of excess premiums is known as dividends. In the context of life insurance, dividends are typically associated with participating policies issued by mutual insurance companies. These policies may earn dividends based on the company's surplus earnings, which can occur when the insurer's actual expenses, mortality, and investment returns result in profits beyond what was anticipated when calculating premiums.

Dividends serve as a way to return a portion of the premium back to policyholders, reinforcing the concept that they are not just buyers of insurance, but rather stakeholders in the company. Policyowners can choose to receive dividends in cash, apply them toward premium payments, or utilize them to purchase additional coverage.

Understanding dividends is crucial for policy owners as it directly affects their financial planning and the long-term value of their insurance products. This aspect can provide significant benefits, such as enhancing the policy's value or reducing future premium obligations.