Dividends paid on participating policies are described as:

• A. Guaranteed fixed payments
• B. A partial return of premium based on insurer performance
• C. A loan against the policy
• D. A separate expense charge

Answer: (B)

Dividends on participating policies come from the insurer’s favorable experience and represent a partial return of the policyholder’s premium based on actual company results, not a guaranteed amount. Because these payments depend on factors like mortality experience, investment performance, and expenses, they can vary from year to year. They’re not loans against the policy, nor are they separate charges added to the policy. They can be taken in cash, used to reduce future premiums, or used to purchase additional paid-up insurance, or left to accumulate.