Which policy type does not pay dividends to policyowners?

Which policy type does not pay dividends to policyowners?

• A. Participating policy
• B. Term life
• C. Nonparticipating policy
• D. Whole life

Answer: (C)

Dividends come from an insurer’s excess profits and are paid only on policies that participate in those profits. A participating policy is designed to share some of the company’s gains with the policyowner in the form of dividends. In contrast, a nonparticipating policy does not participate in the insurer’s profits, so it does not pay dividends to policyowners. While term life typically offers no cash value and does not provide dividends, the defining characteristic asked about here is the absence of dividend participation, which is the hallmark of a nonparticipating policy.

Dividends come from an insurer’s excess profits and are paid only on policies that participate in those profits. A participating policy is designed to share some of the company’s gains with the policyowner in the form of dividends. In contrast, a nonparticipating policy does not participate in the insurer’s profits, so it does not pay dividends to policyowners. While term life typically offers no cash value and does not provide dividends, the defining characteristic asked about here is the absence of dividend participation, which is the hallmark of a nonparticipating policy.