California Life and Health Insurance Practice Exam

What type of insurance policy allows John to share in the insurer's surplus?

1. Non-participating

2. Term

3. Participating

4. Whole life

The correct answer is: Participating

A participating insurance policy allows John to share in the insurer's surplus, which is essentially the profit that the insurer generates after covering claims and expenses. This type of policy not only provides a death benefit but also allows policyholders to receive dividends based on the insurer's financial performance. These dividends can be used in various ways, including reducing premiums, purchasing additional coverage, or being taken as cash. In contrast, non-participating policies do not provide this benefit; the policyholder does not receive dividends and is not eligible to share in any surplus. While term policies primarily focus on providing coverage for a specified term without any cash value or dividends, whole life policies can be either participating or non-participating, depending on the insurance company. However, the question specifically highlights the sharing of surplus, which is unique to participating policies. Thus, the correct answer is participation in the insurer's surplus through participating policies.