What rights do policyholders have regarding dividends?

Policyholders do have certain rights regarding dividends, which are distributions of a portion of an insurance company’s profit back to policyholders. The correct understanding is that policyholders may receive dividends only if the insurer performs well. This is because dividends are not guaranteed and depend on the financial performance and profitability of the insurance company.

When an insurer operates profitably, it accumulates surplus funds, part of which may be returned to policyholders as dividends. Therefore, the entitlement to receive dividends is directly linked to the insurer's overall financial health and successful management, making this option accurate regarding the nature of policyholder rights.

In contrast, the other options do not accurately reflect the nature of dividends. While policyholders can indeed choose how to use dividends once received, such as applying them to premium payments, the dividends themselves must be earned based on the insurer's performance, not guaranteed or based on any individual policyholder’s actions or tax decisions.