What distinguishes participating policies from non-participating policies?

What distinguishes participating policies from non-participating policies?

• A. Participating policies offer higher premiums.
• B. Participating policies provide dividends from the insurer's surplus.
• C. Non-participating policies are available only to seniors.
• D. Non-participating policies are not insured by the government.

Answer: (B)

Participating policies are distinct primarily because they provide policyholders with dividends that are paid out from the insurer's surplus. This surplus typically results from the company’s financial performance, and the dividends can be seen as a return of excess premiums or profits. These dividends can be used in various ways by policyholders, such as taking them in cash, using them to reduce upcoming premiums, or accumulating them within the policy. This feature contrasts sharply with non-participating policies, which do not offer dividends; instead, they charge a level premium that remains constant over the life of the policy. The ability to receive dividends makes participating policies particularly appealing for individuals who are interested in potential returns or benefits beyond the basic insurance coverage, highlighting a key feature of mutual companies where policyholders are also considered members and have a stake in the company's performance. This aspect of participating policies emphasizes their nature in terms of offering additional value to policyholders based on the insurer's success.

Participating policies are distinct primarily because they provide policyholders with dividends that are paid out from the insurer's surplus. This surplus typically results from the company’s financial performance, and the dividends can be seen as a return of excess premiums or profits. These dividends can be used in various ways by policyholders, such as taking them in cash, using them to reduce upcoming premiums, or accumulating them within the policy. This feature contrasts sharply with non-participating policies, which do not offer dividends; instead, they charge a level premium that remains constant over the life of the policy.

The ability to receive dividends makes participating policies particularly appealing for individuals who are interested in potential returns or benefits beyond the basic insurance coverage, highlighting a key feature of mutual companies where policyholders are also considered members and have a stake in the company's performance. This aspect of participating policies emphasizes their nature in terms of offering additional value to policyholders based on the insurer's success.