Dividend insurance represents different distribution policies and dividend ideas, embodies different transparency and fairness, and has different effects on the policy asset share, debt reserve and cash flow of life insurance companies. Therefore, in order to protect the interests of the insured, life insurance companies should take a very cautious attitude towards the formulation and change of dividend distribution methods, not only pay attention to the reasonable expectations of the insured, implement the fair principle of honest management and dividend distribution, but also fully consider the impact of dividend distribution on the company's future dividend level and investment strategy.

1. cash dividend method

Using the cash dividend method, after the end of each fiscal year, the life insurance company first determines the distributable surplus of that year according to the business surplus of that year, and the company's board of directors determines the policy dividend according to its contribution to the total surplus. Dividend distribution among policies varies with products, insured age, gender and policy life, reflecting the contribution rate of policy holders to dividend accounts. Under normal circumstances, life insurance companies will not regard all the annual income generated by dividend accounts as distributable income, but distribute them according to their operating conditions while ensuring the basic stability of future dividends. Undistributed earnings are retained by the company for smoothing future dividends, paying final dividends or as shareholders' equity. The contribution principle of income distribution under the cash dividend method embodies the principle of fairness in dividend distribution among different policy holders.

Under the cash dividend method, policy holders can generally choose to control the cash dividend by leaving the dividend in the company's accumulated interest, withdrawing the dividend in cash, and deducting the next premium. For the insured, the choice of cash dividends is more flexible, which meets the various needs of customers for dividends. For insurance companies, cash dividends not only increase the company's cash flow expenditure, but also reduce liabilities and reduce the pressure on the solvency of life insurance companies. However, the cash dividend distribution policy is relatively transparent. Under the pressure of the market, the company has to distribute most of the surplus to attract the insured by maintaining a high expected annualized interest rate of dividends. This part of assets can not be effectively utilized, reducing the investable assets of life insurance companies. In addition, the annual dividend will put great pressure on the cash flow of life insurance companies. In order to ensure the liquidity of assets, life insurance companies will reduce the investment proportion of long-term assets accordingly, which will affect the expected annualized income of total investment to a certain extent, and the dividends that policyholders will eventually get are also low. Cash dividend method is widely used by life insurance companies in North America.

2. Incremental bonus method

Incremental dividend method pays dividends in the form of increasing the existing insurance amount of the policy. Only in the case of insurance accident, expiration or surrender, the insured can really get the distributed dividend. Incremental dividend consists of regular incremental dividend, special incremental dividend and final dividend. Simple interest method, compound interest method or double expected annualized interest rate method are used to increase dividends regularly every year, and the insured amount is increased by a certain proportion; The extra bonus will only increase the insured amount at one time under some special circumstances, such as the change of government tax policy; The final dividend is generally a certain proportion of the distributed dividend or the total insurance amount, and the surplus generated during part of the policy period is deferred to the end of the policy period for distribution, which reduces the uncertainty of the dividend source during the policy period and makes the annual dividend level tend to be stable.

Incremental dividend method gives life insurance companies enough flexibility to smooth dividends, keep the annual dividend level stable, and finally adjust with the final dividend. Because there is no cash dividend outflow and the delay of dividend increase the investable assets of life insurance companies, there is no pressure of dividend cash outflow, life insurance companies can increase the investment proportion of long-term assets, greatly increasing the expected annualized income of dividend funds and enhancing the dividend income of policy holders.

However, under the incremental dividend method, the only option for the insured to handle dividends is to increase the insurance balance of the policy, and the dividend income can only be obtained when the policy expires or terminates, so the insured has low flexibility in choosing dividends and loses the right to control dividends. In addition, under the increased dividend distribution policy, the dividend distribution is basically determined by life insurance companies, so it is difficult to explain to the insured the rationality of the current distribution policy and its impact on the interests of the insured, especially after the life insurance company smoothes the dividend with the final dividend, it lacks basic transparency. Incremental dividend method is a dividend method adopted by British life insurance companies, which must operate in a mature environment of insurance market.

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