When do dividends accumulate in a life insurance policy?

Dividends in a life insurance policy typically accumulate when the insurance company earns excess profits. This occurs mainly in participating policies, which are policies that allow policyholders to receive a portion of the insurer's surplus. When the insurer has more investment and underwriting income than is needed to cover its expenses and reserve requirements, it may distribute these excess funds in the form of dividends to policyholders.

These dividends are not guaranteed and can fluctuate based on the company’s financial performance, investment income, mortality experience, and the overall expenses associated with providing insurance.

In contrast, extra payments made by the policyholder or age milestones do not directly influence dividend accumulation. Additionally, the conversion of a policy into a whole life policy does not inherently generate dividends but rather changes the nature and terms of coverage. Thus, the accumulation of dividends is specifically tied to the company's financial success rather than the actions of the policyholder or the specifics of policy type conversions.