California Life and Health Insurance Practice Exam

Which type of insurance policy has premiums that do not vary with the insurer's performance?

1. Participating

2. Non-participating

3. Universal

4. Variable

The correct answer is: Non-participating

A non-participating insurance policy is designed so that the policyholder does not have a claim to dividends, which means that the premiums remain stable and do not fluctuate based on the insurer's performance. This stability can be appealing to individuals who prefer consistent budgeting for their insurance expenses. In contrast, participating policies allow for the possibility of dividends based on the insurer's financial performance, leading to variable premiums depending on how well the insurer does. Universal and variable policies, in particular, can have premiums that may change over time based on market conditions or the underlying investment performance, further contributing to variability. Ultimately, the hallmark of non-participating policies is their predictable premium structure, making them a reliable choice for those who prioritize uniform costs.