Insurance Broker Certification Practice Exam

To whom do participating policies return dividends?

1. Insurance brokers

2. Policyholders

3. Third-party vendors

4. Corporate shareholders

The correct answer is: Policyholders

Participating policies return dividends to policyholders as a way to share the profits generated by the insurance company. These policies are typically issued by mutual insurance companies, which are owned by their policyholders. When the company performs well financially, it may declare dividends that are distributed to individuals who hold these policies, rewarding them for their participation in the company. This practice not only provides a return on investment for policyholders but also serves as an incentive for them to maintain their coverage with the company. The nature of participating policies emphasizes the relationship between the insurer and the policyholders, as opposed to other entities such as insurance brokers, third-party vendors, or corporate shareholders. These other groups do not have a direct stake in the inherent profits of the participating policies, which are specifically designed to benefit those individuals who have an active role in the policy.