Rhode Island Life Insurance Practice Exam

If P's premiums are waived due to a disability on a participating life policy, what happens to dividends?

1. P will lose the right to dividends

2. P will still receive declared dividends

3. Dividends will be reduced

4. Dividends will be paid only if premiums are reinstated

The correct answer is: P will still receive declared dividends

When premiums are waived due to a disability on a participating life insurance policy, the policyholder, in this case, P, is still entitled to receive the declared dividends. Participating life insurance policies are designed to pay dividends to policyholders based on the insurer's financial performance, regardless of whether premiums are currently being paid. The waiver of premiums during a disability does not affect the rights to dividends that accrue based on the policy's participation in the issuing company's surplus. This means that even though P may not be actively paying premiums, the policy continues to participate in the company's earning potential, allowing P to benefit from any dividends declared while the waiver is in effect. This characteristic is part of what makes participating policies appealing, as they provide ongoing value even during challenging situations like a disability.