LLQP Life Insurance · Component 2.1 · 30% of the exam
The difference between a participating and a non-participating whole life policy is that:
- Participating policies share in the insurer's surplus through dividends; non-participating policies have lower guaranteed premiums
- BNon-participating policies have no death benefit, since they are pure savings contracts without an insurance element
- CNon-participating policies pay higher dividends, since the insurer does not have to share surplus with participating holders
- DParticipating policies are term policies, since the dividends are used to buy additional one-year term each year
Correct answer: A) Participating policies share in the insurer's surplus through dividends; non-participating policies have lower guaranteed premiums
Par policies are priced conservatively and return part of the insurer's favourable experience as dividends, which are not guaranteed. Non-par policies have fixed, generally lower premiums and no dividends.
Why the other options are wrong
- BNon-par policies pay death benefits like any other.
- CNon-participating policies pay no dividends at all.
- DParticipating policies are permanent policies, not term.
Exam tip
Par = dividends (not guaranteed), conservative pricing. Non-par = no dividends, lower guaranteed premium.
Common mistake
Describing dividends as guaranteed.
What this tests
CISRO competency component 2.1 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Life Insurance module. Written against the published curriculum.
More from component 2
- A client has a need lasting about twenty years and compares a ten-year and a twenty-year term policy. The main point to explain is that:
- A client exercises the conversion privilege on his term policy. The permanent premium will be based on:
- A client notices that a small policy costs proportionately more per unit of coverage than a larger one. The explanation is that:
- A client wants to pay monthly rather than annually. The agent should explain that monthly payment:
- A client asks why dividends from her participating policy are not taxed like interest from a bank. The reason is that a dividend is:
- A universal life policyholder is choosing among the investment options inside her policy. She should understand that:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.