insurance dividends

Mike or Penny Novack stepbystepfarm at mtdata.com
Sun May 13 07:53:02 EDT 2012


David Zelinsky wrote:

>I'm having trouble figuring out where to record dividend checks from a
>mutual insurance policy.  I'm hoping someone has a clever solution.
>
>Here's the situation.  I currently have separate accounts for my
>homeowners and car insurance: Expenses:House:Insurance and
>Expenses:Car:Insurance.  I recently switched both policies to a mutual
>insurance company, which gives me an annual rebate check ("dividend").
>This is supposedly a return of some fraction of the premium, so I would
>like to record it as a rebate in the two expense accounts.  However,
>they don't break it down according to the two policies, so I'm not sure
>where to put it.
>
>I could divide up between the two accounts, according to the ratio of
>the premiums.  But that seems awfully fussy, plus I don't know if the
>divident rate is actually the same for both types of policy (in which
>case, in principle my method could end up with one of them having a
>rebate that's larger than the premium!)
>
>Ideally I would like to have both accounts be under one master account
>for insurance company, so the dividend could go into the parent
>account.  But I still want them to be under Expenses:House and
>Expenses:Car, so they would each need two parents!
>
>At the moment I can't think of anything better to do than just put the
>dividend into some Income account and leave it at that.
>
>Any better suggestions?
>  
>
OK, my working days were spent in that industry. In software for one of 
the world's largest mutual life companies, not the sales end of it, but 
I am a FLMI so know something about this stuff.

a) Dividing between the insurance ---- first of all you need to find 
something out. Dividends are usual with mutual life insurance but 
casualty insurance whether mutual or not usually adjusts rates on an 
annual basis instead. The company I worked for didn't do 
"marine"(casualty insurance) just life so I know less about casualty.

b) When your dividend choice is "cash" then you are receiving a rebate 
on the premium expense. With the life insurance, particularly if 
"permanent" instead of "term" you usually have a choice in how* you get 
your dividends. With some of these other options would be something 
other than a rebate of expense.

c) If they don't tell you which (unlikely -- but perhaps on your "annual 
statement" and not with the check) I'd assume it's from the life policy. 
Is that "term" insurance or permanent insurance?

Michael D Novack, FLMI

* Other options are things like "additional insurance" which uses the 
dividend amount to purchase "paid up" insurance at attained age. These 
additions can later be surrendered. to pay premiums. Often, after paying 
premiums for several years the policy can be "n-payed" (continues in 
force paying for itself from internal values so you no longer pay 
premiums). Accounting for "cash value" life insurance a topic of its own 
as this "income" is NOT income for any tax purposes. That's the whole 
point of insurance as an investment medium.




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