AD Banker Comprehensive Practice Exam

What is returned to the policyowner if the insurer achieves lower mortality and expense costs than expected?

1. The cash value

2. A policy loan

3. A dividend

4. The death benefit

The correct answer is: A dividend

When an insurer experiences lower mortality and expense costs than anticipated, it signifies that the costs of providing coverage have been less than expected. In such cases, insurers typically return a portion of the surplus to policyholders in the form of dividends. Dividends are a distribution of excess profit to policyowners, reflecting the insurer's financial performance. This is often seen in participating life insurance policies, where policyholders have the opportunity to receive dividends based on the insurer's overall profitability and efficiency. The other options do not reflect this scenario: the cash value represents the accumulated savings component of a policy, policy loans are borrowed against the cash value, and the death benefit is what is paid out upon the insured's death. None of these options specifically represent a return derived from the insurer's cost management successes. Therefore, dividends are the accurate recognition of policyholder participation in the insurer's favorable financial performance.