AD Banker Comprehensive Practice Exam

Who decides which dividend option is in effect and can change their election at any time?

1. Board of Directors

2. Beneficiary

3. Insurer

4. Policyowner

The correct answer is: Policyowner

The correct response indicates that the policyowner is the individual who decides which dividend option is in effect and has the flexibility to change their election at any time. This is because the policyowner possesses contractual rights associated with the insurance policy, including the decision-making authority regarding how dividends are utilized. Dividends from a life insurance policy can be allocated in various ways—such as receiving them in cash, applying them to reduce premiums, purchasing additional insurance, or accumulating interest. The policyowner can assess their financial needs and priorities and select the most appropriate option, and they may also choose to modify this choice as their circumstances or preferences change. The other options would not have this authority. The Board of Directors does set dividends and policies but is not responsible for deciding individual policyowner elections. The insurer facilitates the dividend process but does not decide how individual policyowners utilize dividends. A beneficiary typically receives dividends in the event of the policyholder's death, and has no say in dividend election options while the policyowner is alive. Therefore, it is clear that the correct answer lies with the policyowner, as they hold the decision-making power concerning dividend options.