Which is true about the dividends from life insurance policies?

Dividends from life insurance policies are essentially a distribution of excess profits that the insurance company earns, typically from their investment operations, mortality experience, or general expense management. The correct understanding is that dividends may vary based on the insurer’s performance. This variability occurs because dividends are not guaranteed; they are contingent upon the financial performance of the insurance company and how well it manages its funds.

When an insurance company performs well and earns more than projected, it may distribute the surplus to policyholders in the form of dividends. Conversely, if the company does not perform as expected, the amount or even the issuance of dividends may be adjusted accordingly. This reflects the operational nature of mutual insurance companies, which are owned by policyholders and can share their profits in this manner.

Dividends are not automatic or guaranteed, and policyholders do not receive them at each payment period. They also have flexibility in how they can use dividends, including applying them toward premiums, purchasing additional coverage, or even taking them as cash. This further underscores the point that dividends are performance-based, allowing for fluctuations depending on the company's success.