Arizona Life and Health Practice Exam

If dividend option choices are provided on a whole life insurance policy, what must the policy include?

1. A statement that dividends are guaranteed

2. No statement regarding dividends

3. A statement that dividends are NOT guaranteed

4. A disclaimer about loan interest

The correct answer is: A statement that dividends are NOT guaranteed

In whole life insurance policies, if dividend options are presented, it is essential for the policy to include a statement indicating that dividends are not guaranteed. This is crucial because it sets clear expectations for the policyholder about the nature of dividends, which are based on the insurance company's financial performance and are not a certainty. By including this statement, the policy ensures transparency and informs policyholders that while dividends may be possible, they are contingent upon factors such as the company's profitability and overall risk assessment. The presence of this statement protects the insurer from potential claims that the policyholder might have if they anticipate receiving dividends that do not materialize. Understanding this aspect is important for policyholders as it helps them make informed decisions regarding their insurance coverage and financial planning.