Which statement about dividends in a participating policy is true?

• A. Dividends are guaranteed
• B. Dividends are optional and may be paid at the insurer's discretion
• C. Dividends are not guaranteed and depend on insurer performance
• D. Dividends are paid only as cash refunds

Answer: (C)

Dividends on a participating life policy come from the insurer’s actual surplus and are not guaranteed. They depend on how well the company performs in terms of mortality, investment results, and expenses in a given year, so the amount (or even the existence) of dividends can vary. When dividends are declared, they can be taken in several ways, such as cash, reducing future premiums, or buying additional paid-up life insurance. This is why the statement that dividends are not guaranteed and depend on insurer performance is true. The other ideas aren’t accurate because dividends aren’t guaranteed every year, they aren’t simply discretionary cash payments decided year-to-year, and they aren’t limited to cash refunds only.