California Life and Health Insurance Practice Exam

How often must life insurance surplus be distributed to policyowners?

1. Monthly

2. Semi-annually

3. Annually

4. Bi-annually

The correct answer is: Annually

The distribution of life insurance surplus to policyowners typically occurs annually. This process allows the insurance company to assess its financial performance over a complete year and determine how much of its surplus profits can be allocated back to policyholders. By distributing the surplus on an annual basis, it provides a clear understanding of the company's profitability and its ability to meet its obligations while also rewarding policyowners with a portion of the profits. In contrast, more frequent distribution intervals such as monthly, semi-annually, or bi-annually might not align with the typical financial reporting and assessments that insurance companies use, as the confidence in surplus estimates often stabilizes over a longer yearly cycle. This annual approach helps ensure that the amount distributed is reflective of the company’s overall financial health during the year.