Which statement is true about dividends?

Dividends from a life insurance policy are typically associated with participating policies offered by mutual insurance companies, which pay policyholders a share of the company's profits. While dividends are not guaranteed and can vary significantly from year to year, when they are retained by the insurer and held at interest, they may be treated as taxable income for the policyholder. This is based on the principle that interest earned on retained dividends is considered income by the IRS, thereby making option B the correct statement.

The other statements do not accurately reflect how dividends work in life insurance. For instance, dividends are not guaranteed for every policy—this is dependent on the financial performance of the insurer. Additionally, dividends are applicable to certain life insurance policies, specifically participating policies, and are not exclusively limited to reducing future premium payments; they can also be taken as cash, used to purchase additional coverage, or applied to repay loans.