Washington Life Producer Practice Exam

Which type of life insurance policy issued by a mutual insurer provides a return of divisible surplus?

1. Term life insurance policy

2. Whole life insurance policy

3. Participating life insurance policy

4. Universal life insurance policy

The correct answer is: Participating life insurance policy

A participating life insurance policy, often issued by mutual insurers, is designed to pay policyholders dividends that represent a share of the insurer's surplus. This type of policy allows policyholders to benefit from the financial success of the insurance company, as they receive returns based on the performance of the insurer and its ability to generate profit beyond its obligations. These dividends can be reinvested, taken as cash, or used to reduce premiums, making them a valuable feature of participating policies. The key distinction of a participating policy is its engagement with policyholders, allowing them to receive a portion of the profits. In contrast, other types of life insurance, such as term policies, typically do not build any cash value or surplus return; they serve strictly as death benefit coverage without profit-sharing features. Whole life policies, while they can accumulate cash value and may offer dividends, are often not explicitly noted as "participating" unless they share surplus in this manner. Universal life policies provide flexibility but are not generally structured to return dividends to policyholders. Thus, a participating life insurance policy is specifically designed to return surplus, distinguishing it from other forms of life insurance.