Texas Life Agent Practice Exam

Paying dividends to policyholders out of a surplus accumulated from participating policies is a standard practice within the insurance industry, particularly for mutual insurance companies. This practice is viewed as fair and beneficial because it reflects the company's financial performance and rewards policyholders for their participation in a mutual ownership structure. When a company has surplus funds, distributing dividends serves to enhance customer loyalty and provide a financial return on their investment in the policy. This process is regulated and seen as part of the ethical conduct within the industry, thus distinguishing it from the other choices, which directly involve deceptive practices that can harm consumers or mislead them regarding the true nature of their policies.

Misrepresentation of policy benefits, churning policies for commission purposes, and making false statements to induce purchases are all recognized as unfair practices as they involve deceitful behavior that can manipulate or exploit the consumer's trust, ultimately undermining the integrity of insurance transactions and operations.