Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
Which statement about a nonparticipating life insurance policy is correct?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A nonparticipating (non-par) policy does not pay dividends; the premium is based on more conservative assumptions and the policyowner does not share in the insurer's divisible surplus. Because there are no dividends to fluctuate, non-par policies often carry lower base premiums than participating policies, which charge higher premiums and return a portion of surplus to policyowners as dividends. Non-par policyowners are not shareholders, and the absence of dividend participation does not depend on the company's actual profit in a given year.
Why the other options are wrong
- B) Dividends are characteristic of participating (par) policies, not nonparticipating policies, and dividends are never guaranteed.
- C) Policyowners are not shareholders; shareholders own a stock insurer, while policyowners simply hold insurance contracts.
- D) Premiums are set in advance based on pricing assumptions; they do not adjust up or down with the company's annual profits.
Memory hook
Non-par = no surplus sharing, no dividends, typically leaner premiums. Par = share the pie.