In a participating policy, who benefits from a surplus if actual results exceed expectations?

In a participating policy, the key feature is that it allows policyholders to share in the financial performance of the insurance company. When the actual results exceed expectations, such as in terms of investment income, mortality rates, or expense management, these surplus profits are not only retained by the insurer but are also distributed to the policyholders.

This distribution typically occurs in the form of policy dividends, which can reduce premiums, increase cash values, or even be taken as cash. Therefore, both the insurer and the policyholder benefit when actual results are better than anticipated; the insurer can maintain a profitable business, and policyholders receive a tangible benefit from their participation in the policy.

The structure of participating policies is designed to align the interests of insurers and policyholders, effectively turning the policyholders into partial owners of the insurance operations. This mutual benefit emphasizes the importance of appropriately capitalizing on underwriting performance, investment results, and other favorable financial circumstances, which ultimately allows for shared gains from those successes.