terminal dividend

A terminal dividend is an additional dividend that is paid to the policyholder when a life insurance policy is terminated.

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The terminal dividend is usually paid only after a minimum in-force period of 10 to 20 years. The terminal dividend generally applies only to life insurance policies written through mutual insurance companies and represents the policyholder's equitable portion of the overall increase in the insurer's surplus over the period the policy was in force. Some companies pay a terminal dividend no matter how a policy is terminated, while others only pay it under certain conditions.