Are dividends guaranteed by insurers?

• A. Yes
• B. No
• C. Only for participating policies
• D. Only guaranteed under certain conditions

Answer: (B)

Dividends are not guaranteed by insurers. In life insurance, a dividend is a distribution from a participating company’s excess earnings, based on the insurer’s actual financial performance. They can be paid in cash, used to reduce premiums, or purchase additional paid-up insurance, but there is no promise they will be paid each year. Even for participating policies, dividends depend on factors like investment returns and mortality experience, so they can vary or be zero in some years. Nonparticipating policies don’t pay dividends at all.