Which statement differentiates participating and nonparticipating policies?

• A. Participating policies may pay dividends to policyowners; nonparticipating policies do not.
• B. Participating policies never pay dividends, while nonparticipating do.
• C. Participating policies are only for corporate clients; nonparticipating for individuals.
• D. Participating policies have higher premiums with no dividends.

Answer: (A)

The main idea here is how dividends relate to the two types of life insurance policies. Participating policies are designed to share the insurer’s profits with policyowners, so they may pay dividends if the company performs well. These dividends are not guaranteed and can be taken in cash, used to reduce premiums, or purchase additional paid-up insurance. Nonparticipating policies, often issued by stock insurers, do not pay dividends to policyowners at all.

So the best distinction is that participating policies may pay dividends, while nonparticipating policies do not. The other statements don’t fit because dividends are a defining feature of participating plans, and they aren’t tied to corporate-only issuance or guaranteed higher premiums without dividends.