LLQP Ethics & Professional Practice · Component 1.4 · 60% of the exam
A 'participating' versus 'non-participating' policy:
- AA non-participating policy pays dividends from the insurer's surplus, while a participating policy has fixed terms for its whole life
- BA participating policy is always cheaper, since the dividends offset the premium from the first year
- CThey differ only in name, since every policy shares in the insurer's results through its premium rate
- A participating policy shares in surplus through non-guaranteed dividends; a non-participating policy has guaranteed terms
Correct answer: D) A participating policy shares in surplus through non-guaranteed dividends; a non-participating policy has guaranteed terms
Understanding par versus non-par is needed to explain dividend provisions and illustrations honestly.
Why the other options are wrong
- ANon-participating policies pay no dividends.
- BParticipating premiums are usually higher.
- CThey differ in structure.
Exam tip
Par: dividends (not guaranteed), higher premium. Non-par: guaranteed, no dividends.
Common mistake
Presenting par dividend illustrations as guaranteed.
What this tests
CISRO competency component 1.4 — Integrate into practice the legal aspects of insurance and annuity contracts — which is weighted at 60% of the Ethics & Professional Practice module. Written against the published curriculum.
More from component 1
- An 'assignee' of a life insurance policy is:
- A corporation as policyowner and beneficiary of a policy on a key employee:
- A 'trustee' named to receive proceeds on behalf of a beneficiary:
- The 'automatic premium loan' (APL) provision:
- A life insurance contract 'matures' when:
- The 'assignment' provision typically states that:
Practice the whole Ethics & Professional Practice module
Timed sets weighted like the exam, and review of every question you miss. Free to start.