AD Banker Comprehensive Practice Exam

Which of the following is NOT a source of life insurance policy dividends?

1. Reductions in operating expenses

2. Savings in mortality

3. Guaranteed cash value accumulations

4. Additional interest earnings

The correct answer is: Guaranteed cash value accumulations

In the context of life insurance policies, dividends are typically a return of excess premium to policyholders and can arise from various sources attributable to the insurer's financial performance. The primary sources of dividends often include operational efficiencies, savings from lower-than-expected mortality rates, and additional interest earnings on the insurer's portfolio. Guaranteed cash value accumulations, however, are not considered a source of dividends. The cash value in a life insurance policy accumulates over time based on the guaranteed interest rates outlined in the policy contract. This cash value is a separate feature and is not derived from the insurer's profitability or performance. Instead, it is a predetermined aspect of the policy, and policyholders do not receive dividends related to guaranteed cash value. In contrast, options such as reductions in operating expenses, savings in mortality, and additional interest earnings represent variances in insurer performance that can positively impact the financial results and potentially lead to dividends for policyholders. Dividends are dependent on these operational and financial efficiencies rather than being a guaranteed feature of the policy's cash value component.