Which statement is true regarding policy dividends?

The correct statement regarding policy dividends is that they cannot be guaranteed. In the context of life insurance, dividends are typically associated with participating policies, which are policies that allow policyholders to share in the insurer's profits. The amount and issuance of these dividends depend on various factors, including the company's financial performance, mortality experience, investment returns, and expenses. Since these factors can fluctuate from year to year, the payment of dividends is not guaranteed, making this statement accurate.

Understanding why dividends can vary is important; they are essentially a return on the policyholder's investment in the mutual insurance company, reflecting the overall profitability and operational effectiveness of the insurer. Thus, while policyholders may receive dividends if the company performs well, there is no certainty that they will actually receive them each year.

The other options present several inaccuracies. Dividends are not guaranteed annually for every policyholder because they depend on the performance of the insurance company. They can certainly be used to reduce premiums, but this is just one of the several options available, such as taking cash, purchasing additional coverage, or leaving them to accumulate interest. Lastly, dividend amounts are not fixed and known at policy inception because they are contingent upon future performance and conditions rather than predetermined values.