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How to get paid car insurance dividends
With the right car insurance company, you could get extra cash just for being a policyholder.
A dividend car insurance policy is one that pays you an extra check when a mutual insurance company makes a profit. With this type of policy, you’re a shareholder in the company, and your premiums pay for your share. Dividend policies may cost more than traditional insurance, and you’re not guaranteed a dividend payout. Overall, you could see an extra 5% or even up to 25% of your share in an unusually profitable year.
How to get dividends from your car insurance
To get paid dividends from your car insurance, you first need to buy from a company that pays dividends. But understand how the company’s dividend payouts work and consider other insurance companies to make sure the dividend policy offers you the best value.
1. Find mutual car insurance companies.
The easiest way to find which companies offer dividends is to look for companies that are considered mutual insurance companies. A few mutual companies that you can look into:
Mutual car insurance companies differ from standard insurance companies because they’re owned by shareholders instead of stockholders. At the end of every fiscal year, the company releases its earnings and sends you a check for your share of any profits. When you sign up for coverage, your policy terms and conditions will list any details regarding dividends.
2. Research the company’s typical dividend payouts.
You can search on the company’s website, forums or ask a customer representative about how often the company pays dividends and how much it pays. Some mutual companies like NJM are known to pay dividends yearly, while others only offer dividends once every few years.
- Frequency. How often you get a payment can vary, but most car insurance dividends are paid yearly.
- Dividend ratio. Companies decide how much of its earnings are distributed to shareholders and how much is retained and put towards growth.
- Company earnings. The more a company earns, the more you can potentially receive in dividends. However, if a company has a bad term, you’ll likely receive less — if any.
- Share of ownership. Companies pay dividends by the share, so the more shares you own, the more money you receive.
- Liquidity. If a company’s earnings are tied up in investments rather than cash, you may receive a smaller dividend so that the company has more cash to spend.
3. Understand the payment process.
Mutual companies may offer your payment in different ways. Some insurers credit your bank account or lower your car insurance premium for a few months, while others send you a check for your dividend payment. You can enjoy this extra payment without worrying about paying taxes on the amount.
Make sure to ask the insurance agent or customer service how and when you’ll get a dividend payment. If your dividend is credited automatically, you can check your account to make sure that you received your payment. Then, you can follow up with customer service on the reasoning if you were expecting a dividend.
4. Compare quotes from mutual and standard car insurance companies.
Dividends make a nice perk if you already prefer a specific company or are choosing between two similar companies. But since insurance companies can’t guarantee a dividend payment, consider how much you’ll pay overall for your car insurance premiums.
If the cost and coverage are close to another company’s and you like the idea of a surprise bonus payment, going with the mutual company may work well for you. However, if you’ll pay significantly more for the same or less coverage, keep shopping to find the best value for you.
How much could I get paid in dividends?
You might receive between $50 and $100 in a profitable year, though it’s hard to say exactly how much you’ll get paid in dividends. The exact amount depends on whether your company had a profitable year with fewer claims than expected.
While dividends historically don’t pay much, many insurance companies returned 10–25% of premiums back to policyholders for several months during the COVID-19 pandemic. Many companies received fewer claims and paid less for claims because people stayed at home and didn’t cause many accidents.
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Are there any risks with dividends?
While there aren’t necessarily any risks with dividends, there are a few things to watch out for:
- Small payouts. Dividend payouts are not always substantial, so you shouldn’t expect a massive paycheck.
- Higher premiums. Companies that pay dividends might charge higher premiums to make up for it, so you may end up paying more for insurance.
- Demutualization. Demutualization is when a mutual insurance company decides to become a stock insurance company. If this happens, you won’t have a share of the company or receive dividends any more.
- Profits not guaranteed. Mutual insurance companies can choose not to declare dividends at the end of the fiscal year.
- Policy terms. You won’t receive dividends unless you’re a policyholder on the date your insurer declares dividends. So if the company declares dividends in January and you purchase a policy in February, you’re out of luck for that payout.
- Subsidiaries don’t pay out. Not all mutual insurance companies pay dividends. And if you’re insured by a stock insurance subsidiary of a mutual insurance company, it’s unlikely you’ll receive anything.
- Dividends optional. Some insurers allow you to choose a dividend or standard insurance policy. So if you want to receive dividends, you’ll need to make sure your policy offers them.
How do standard insurance companies use their profits?
Instead of having policyholders own the company, most car insurance companies are owned by investors that purchase the company’s stock. Any profits generated by these companies are distributed to these stockholders, meaning that policyholders don’t get a share of the profits or earnings.
Bottom line
If you can find a car insurance company that offers dividends, you could offset a portion of your expensive car premiums.
Not all companies offer them and the actual payouts can vary, so it’s important not to choose coverage based on dividends alone. Whether you decide on a mutual company or not, compare your options to find a company and policy that meet your needs.
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