Question 22

A participating whole life policy may pay dividends from all of the following EXCEPT stock market gains.

Dividends from a participating whole life policy are typically derived from the insurer's financial performance in areas such as mortality savings, interest earnings, and expense savings. However, dividends are not influenced by stock market gains, as these policies are not tied to market performance.

A) Excess mortality savings

Excess mortality savings refer to the difference between the expected mortality costs and the actual claims paid by the insurer. When the insurer experiences fewer deaths than predicted, it can generate surplus funds, which may be distributed as dividends to policyholders. Thus, this option is a source of dividends.

B) Excess interest earnings

Excess interest earnings arise when the insurer earns more on its investments than what was projected. This surplus can also contribute to the dividend pool, making this option a valid source of dividends from a participating whole life policy.

C) Excess expense savings

Excess expense savings occur when an insurance company spends less on operational costs than anticipated. These savings can also be returned to policyholders in the form of dividends, confirming this choice as a correct source of dividends.

D) Stock market gains

Stock market gains do not influence the dividends of a participating whole life policy because these policies are designed to provide guaranteed benefits and are not linked to market fluctuations. Therefore, this option is correct as the source that does not contribute to dividends.

Conclusion

The correct answer is D) Stock market gains, as dividends from a participating whole life policy are derived from operational performance factors such as excess mortality savings, excess interest earnings, and excess expense savings. Options A, B, and C are all valid sources of dividends, while stock market performance is irrelevant to the dividend calculation for these policies.