Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
Which statement correctly describes a nonparticipating life insurance policy?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A nonparticipating policy uses guaranteed, fixed premium and benefit assumptions, so the insurer keeps any surplus that results from favorable mortality, expense, or investment experience. The policyowner receives no dividends. Nonparticipating policies are typically issued by stock companies, and their premiums cannot be reduced by dividends. Because the insurer assumes the risk that actual experience will be better than assumed, the policyowner is not entitled to share in the resulting surplus.
Why the other options are wrong
- B) Paying annual dividends to policyowners is the defining feature of a participating policy, not a nonparticipating one.
- C) Policyowners of a nonparticipating stock-company policy are customers, not shareholders; shareholders own the stock company.
- D) The premium of a nonparticipating whole life policy is level for life, not decreasing with age.
Memory hook
Nonparticipating = no dividend checks. Any surplus stays with the company; the contract says so up front.