Primerica Life Producer Practice Test

What is a characteristic of a participating insurance policy?

1. It requires non-payment of premium to remain active

2. It pays dividends to the policy owner

3. It automatically leads to a policy lapse

4. It must be held for a minimum of ten years

The correct answer is: It pays dividends to the policy owner

A characteristic of a participating insurance policy is that it pays dividends to the policy owner. Participating policies are designed to allow policyholders to share in the insurer's profits, typically through the payment of dividends. These dividends can be used in various ways by the policyholder, such as reducing premiums, purchasing additional coverage, or being taken as cash. This feature is a key selling point for participating policies, as it offers the potential for additional financial benefits beyond just the insurance coverage itself. In contrast, the other options do not accurately describe a participating policy. Non-payment of premiums would not typically keep a policy active; instead, this could lead to a lapse. Automatic lapses do not occur with participating policies, which are designed for the long-term benefit of the policyholder. Lastly, there is no requirement for a minimum holding period of ten years for a participating policy; these policies can be accessed or potentially surrendered much sooner depending on the terms set forth by the insurer and the policyholder's needs.