Insurance Broker Certification Practice Exam

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What type of policy does a nonparticipating policy represent?

Policies that pay dividends
Policies that do not pay dividends
Policies requiring membership fees
Policies with guaranteed returns

The correct answer is: Policies that do not pay dividends

A nonparticipating policy is designed in such a way that the policyholder does not receive dividends from the insurer's profits. This type of policy typically provides a guaranteed death benefit and may have fixed premiums, but it does not share in the financial performance of the insurance company, which is why it does not pay dividends. In contrast, participating policies are structured to allow policyholders to receive dividends, usually as a result of the insurer performing better than expected financially. Nonparticipating policies can appeal to individuals who prefer greater predictability and stability in their insurance costs and benefits without the variable nature of dividends. This makes them distinct from other types of policies that involve profit-sharing or membership conditions.