:max_bytes(150000):strip_icc():format(jpeg)/GettyImages-2178722238-fd66900da19145e0b54a7c5bf9a3d908.jpg)
Car insurance isn’t cheap, with Americans paying an average of $2,313 in 2024. A lesser-known policy type could help you save. Car insurance dividend policies return a portion of premiums to policyholders if certain conditions, typically tied to the insurer’s financial performance, are met. Learn more about car insurance dividend policies and when they might be right for you.
Key Takeaways
- Car insurance dividend policies let you recoup a portion of your premiums if your insurer meets specific financial goals.
- They could save you hundreds of dollars annually on your car insurance.
- Savings vary, however, because premiums on these policies tend to cost more upfront, and dividend payouts aren’t guaranteed.
- Mutual insurance companies like Amica and Liberty Mutual commonly offer these policies.
- Compare quotes from traditional and mutual insurers to determine if a car insurance dividend policy can benefit your budget.
How Car Insurance Dividend Policies Help You Save
“The coverage provided in a dividend policy is similar to a traditional auto policy,” said Mark Friedlander, a spokesperson for the Insurance Information Institute (III). But the payment agreement is a bit different—namely, you can recoup a portion of your monthly premiums if the company meets certain criteria.
The criteria are typically tied to your insurer’s ability to turn a profit. For instance, the company might have to achieve certain revenue goals, investment returns, claims amounts, or operating expense limits.
If the insurer meets those targets, you’ll receive money back, usually through a check or as a credit toward future premiums. Dividend payouts typically happen at the end of your policy term, which occurs annually or biannually.
Important
Dividends can save you in the long run. Amica, which offers car insurance dividend policies, says that its average dividend payments are between 5% and 20% of a policyholder’s annual premium. So, for example, if you’re paying the annual average of $2,313 for car insurance, in a best-case scenario (a 20% payout), you’d save $463 that year.
The Dividend Downsides
There are trade-offs, though. For starters, dividend policies tend to tout higher premiums—and your payout is not guaranteed.
Whether you receive money back—and the amount you get paid—depends on the insurer’s financial performance and is subject to board approval.
“If it’s been a rough year (hurricanes, wildfires, angry raccoons), don’t expect a dividend,” said John Espenschied, founder and agency principal of Insurance Brokers Group, in an email to Investopedia. “In other words, you might be paying a bit more upfront for the possibility of a refund. It’s a gamble, but if you’ve got a clean driving record, it could pay off over time.”
Tip
Maintaining a clean driving record can help you save on car insurance because good drivers qualify for better rates than people with accidents or violations on record.
Which Insurers Offer Car Insurance Dividend Policies?
Mutual insurance companies typically offer dividend policies as these non-public companies are owned by their policyholders. Here are some that provide car insurance dividend policies:
- Amica Mutual Insurance Company
- Liberty Mutual Insurance
- New Jersey Manufacturers Insurance (NJM) Company
- State Farm Mutual Insurance Company
- USAA
The laws around dividend policies may vary from state to state. Stiil, if you’re interested in one, ask your agent. “Not every agent is quick to bring it up,” Espenschied said.
Pros & Cons of Car Insurance Dividend Policies
Pros
- Possible return on premiums
- Gives you a small stake in the company
- Mutual insurers are known for good customer service
Cons
- Higher upfront premiums
- Payout is not guaranteed
Deciding if a Car Insurance Dividend Policy Is for You
Car insurance dividend policies aren’t necessarily for everyone. These steps can help you determine your ability to benefit from this option.
- Shop around. This step is important as car insurance rates vary widely by insurer, location, and customer profile, among other factors. “We suggest you compare [the dividend policy] to quotes from traditional auto insurers and see what works best for you and your budget,” said Friedlander.
- Ask about past payouts. Getting a few years’ dividend history from the insurer or your agent can give you a better idea of how much you might expect to receive back on your policy.
- Check an insurer’s financial strength. Many independent agencies, including AM Best and Fitch Ratings, assess and grade insurance companies on capital, earnings, risk management, and more.
- Assess your risk tolerance. These policies cost more upfront with no guaranteed return. Plus, you’ll have to wait for a payout. “If you’re more rate sensitive or switching carriers every six months to chase discounts like they’re Pokémon, you probably won’t stick around long enough to see the benefit,” Espenschied said.
The Bottom Line
With car insurance rates rising, it’s important to find new ways to save on a policy. Some mutual insurers offer car insurance dividend policies that return a portion of your premiums at the term’s end. These policies can significantly lower your overall financial burden. But premiums may run high, and payouts aren’t guaranteed, so you’ll want to compare quotes and assess an insurer’s financial strength before selecting this policy type.
