Primerica Life Producer Practice Test

A participating insurance policy may do which of the following?

1. Pay dividends to the policyowner

2. Limit coverage to specified events

3. Exclude the policyholder from certain benefits

4. Automatically renew without premium payment

The correct answer is: Pay dividends to the policyowner

A participating insurance policy allows policyholders to receive dividends, which are payments made to them based on the insurer's financial performance. These dividends are typically derived from the company's profits and can be distributed to policyholders who participate in the policy. The amount of the dividend is not guaranteed and will vary depending on the company's overall success, but the potential to receive these dividends is one of the primary features of participating policies. This stands in contrast to non-participating policies, where policyholders do not have the opportunity to receive dividends. Consequently, selecting a participating policy often appeals to those who want a potential for an additional return on their premium investment beyond just the death benefit. The other options listed do not accurately describe the characteristics of a participating insurance policy. For instance, limiting coverage to specified events typically pertains to certain types of policies rather than being a broad feature of participating policies. Likewise, excluding the policyholder from certain benefits does not align with the purpose of participation, which is to share in the insurer's profits. Lastly, the automatic renewal without premium payment is not a standard feature of any insurance policy, as premiums are typically required to maintain coverage and benefits.