South Carolina Life and Health Practice Exam

What type of insurance would a policyholder expect to receive dividends from?

1. Term insurance

2. Mutual insurance

3. Government insurance

4. Group insurance

The correct answer is: Mutual insurance

A policyholder can expect to receive dividends from mutual insurance. This is because mutual insurance companies are owned by their policyholders. When the company performs well financially, it may decide to distribute a portion of its profits back to the policyholders in the form of dividends. These payments can vary based on the company’s overall performance and the specific policyholder's coverage contributions. In contrast, term insurance, which provides coverage for a specific period, does not include a savings component or profit-sharing aspect, meaning no dividends are paid. Government insurance typically provides basic coverage and does not operate for profit, thus not distributing dividends either. Group insurance plans, often provided through employers, also do not typically offer dividends to policyholders. This structure reinforces that dividends are a benefit exclusive to mutual insurance policies.