Maryland Life and Health Insurance License Practice Exam

What value does a policyowner receive from participating policies?

1. Guaranteed minimum interest rate

2. Potential dividends based on insurer's performance

3. Fixed renewal premiums regardless of age

4. Access to a separate savings account

The correct answer is: Potential dividends based on insurer's performance

Participating policies are designed to provide policyholders with the opportunity to receive dividends, which are distributions of surplus earnings from the insurance company. These dividends are not guaranteed, as they depend on the insurer's financial performance and profitability. When the company performs well, it can declare and distribute dividends to participating policyholders, which can be used in various ways such as reducing premiums, purchasing additional coverage, or being taken as cash. The nature of participating policies is that they align the interests of policyholders with the financial success of the insurer. This potential for dividends is a unique characteristic that distinguishes participating policies from non-participating policies, where policyholders do not receive any dividends. Hence, the presence of potential dividends based on the insurer's performance is a major appeal of these policies for individuals seeking not just insurance coverage but also a way to possibly benefit from the insurer's success.