Pegging

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Pegging Pegging is a practical smoothing device used to arbitrarily increase the actual dividend (s) paid on a new lower dividend scale to eliminate a temporary reduction in the actual dividends paid from year to year on a policy. Usually only base policy dividends are pegged; dividends on riders and Paid Up Additions (PUA) are not. See: Substitution.

Pegging compares (normally before any adjustments for loans) the following: (a) The smaller of the dividend amount actually paid in the prior policy year and the prior year's dividend schedule payable in the current policy year, and (b) The current policy year's formula payment under the current year's schedule. This distribution does not follow the contribution method. It's done infrequently to enhance persistency.