A nonparticipating life insurance policy differs from a participating policy primarily in that a nonparticipating policy:

Why A is correct

In a nonparticipating policy, the policyowner does not share in the insurer's divisible surplus and therefore receives no dividends. The premium is fixed at the insurer's estimate and is often lower than the premium of a comparable participating policy because no dividend is anticipated. Dividends, which are never guaranteed, are the distinguishing feature of participating policies, typically issued by mutual companies. Nonparticipating policies are usually issued by stock insurers, and they may certainly build cash value if they are permanent policies, so the absence of dividends is the defining difference.

Why the other options are wrong

• B) Dividends are never guaranteed under any policy; participating dividends depend on the insurer's actual mortality, interest, and expense experience each year. By contrast, participating policies distribute dividends from the insurer's divisible surplus to their owners.
• C) Nonparticipating policies are generally issued by stock insurers, while mutual insurers typically issue participating policies; the reverse is the common pattern. They are declared by the board based on actual experience and can be lowered or skipped entirely.
• D) Nonparticipating permanent policies do build cash value under their nonforfeiture provisions; whether a policy participates has nothing to do with cash value. Mutual companies are owned by policyholders, which is why they typically issue participating contracts.

Memory hook

Nonparticipating = no profit-sharing dividend. Participating = a slice of the surplus, but never guaranteed.