Life & Health Insurance Practice Exam 2025 – Your All-in-One Guide to Exam Success!

A policy that allows the policyowner to share in the company's earnings through dividends is known as a participating plan. In this type of insurance policy, the insured has the opportunity to receive dividends that are paid out of the insurer's surplus. These dividends are not guaranteed and can vary based on the company's financial performance, but they may be distributed annually.

Participating plans are typically whole life insurance policies or other permanent life insurance options. The dividends can be used in various ways, such as to reduce premiums, purchase additional coverage, or accumulate interest. This structure provides an element of profitability and participation for policyholders, aligning their interests with the insurer's performance.

The other options, such as non-participating policies, term life insurance, and universal life insurance, do not provide this dividend benefit. Non-participating policies do not allow for dividends, term life insurance focuses solely on death benefit coverage without cash value or dividend features, and universal life insurance offers flexible premiums and adjustable death benefits but typically does not entail sharing in company earnings through dividends.