Legal Definitions - deferred-dividend insurance policy

A deferred-dividend insurance policy is a type of life insurance policy that accumulates a fixed percentage of the insurer's surplus profits. The accumulated amount is payable as a lump sum on a certain date or at the insured's death, whichever comes first.

For example, John purchases a deferred-dividend insurance policy with a 5% accumulation rate. Over the years, the insurer's surplus profits increase, and John's policy accumulates $10,000. When John dies, his beneficiary receives the accumulated amount in addition to the death benefit.

Deferred-dividend insurance policies were popular in the past but are now rare. They illustrate how life insurance policies can accumulate cash value over time.