Texas Life Agent Practice Exam

What aspect of life insurance can be projected but is not guaranteed?

1. Face amount

2. Premium payments

3. Dividends

4. Cash value

The correct answer is: Dividends

Dividends are a key feature of certain life insurance policies, particularly participating whole life insurance. They are paid out to policyholders from the insurer's surplus earnings, typically when the company performs well financially. Although many insurers have a history of paying dividends, and projections can be made based on past performance and expected future profitability, these dividends are not guaranteed. This means that while a policyholder can reasonably expect to receive dividends based on the insurer’s performance, there is no certainty that they will be paid or by what amount. In contrast, the face amount of a life insurance policy is guaranteed, as it is the death benefit that will be paid out to beneficiaries upon the death of the insured. Premium payments are also fixed and required for the coverage to remain in force, making them a known quantity that policyholders can rely on. Cash value is a guaranteed feature of whole life policies, which builds over time and can be accessed by the policyholder. Thus, dividends stand out as the aspect that can be projected based on calculations and historical data, but which does not come with a guarantee.