Which policy is typically issued by a mutual insurer and provides a return of dividend surplus?

• A. Nonparticipating life insurance policy
• B. Endowment policy
• C. Participating life insurance policy
• D. Variable life policy

Answer: (C)

Participating life insurance policies are issued by mutual insurers. Because mutuals are owned by policyholders, they may share profits from the insurer’s surplus with those owners in the form of dividends. These dividends represent a return of excess premiums or accumulated surplus and are not guaranteed; they can be used to reduce premiums, purchase paid-up additions, or be taken as cash.

Nonparticipating policies are issued by stock insurers and do not provide policyholder dividends. An endowment policy is a life policy that pays the face amount at maturity or on death, but its participation status isn’t defined by mutual ownership. A variable life policy involves investment accounts and has different dividend characteristics, not the traditional surplus dividends tied to mutual ownership.