Under what circumstance do dividends from a life insurance policy typically accumulate?

Under what circumstance do dividends from a life insurance policy typically accumulate?

• A. When a policy is participating
• B. When a policy is term
• C. When a policy is guaranteed
• D. When a policy is universal

Answer: (A)

Dividends from a life insurance policy typically accumulate when the policy is participating. Participating policies are designed to share in the insurer's profits, and they provide policyholders with the opportunity to receive dividends based on the company’s performance. These dividends can be used in several ways, such as to reduce premiums, purchase additional coverage, or they can accumulate within the policy, earning interest. In contrast, non-participating policies do not offer dividends, as these policies do not share in the profits of the insurance company. Term policies, for instance, are usually non-participating and also do not accumulate cash value, making them ineligible for dividends. Similarly, while guaranteed and universal policies may come with certain guarantees, they don't inherently offer dividend accumulation unless they are structured as participating policies. Thus, the nature of a participating policy is what specifically allows for the accumulation of dividends.

Dividends from a life insurance policy typically accumulate when the policy is participating. Participating policies are designed to share in the insurer's profits, and they provide policyholders with the opportunity to receive dividends based on the company’s performance. These dividends can be used in several ways, such as to reduce premiums, purchase additional coverage, or they can accumulate within the policy, earning interest.

In contrast, non-participating policies do not offer dividends, as these policies do not share in the profits of the insurance company. Term policies, for instance, are usually non-participating and also do not accumulate cash value, making them ineligible for dividends. Similarly, while guaranteed and universal policies may come with certain guarantees, they don't inherently offer dividend accumulation unless they are structured as participating policies. Thus, the nature of a participating policy is what specifically allows for the accumulation of dividends.