Which of the following statements is TRUE regarding life policy dividends?

The statement regarding policy dividends that is true is that mutual insurance companies issue participating policies that may pay an annual dividend. Mutual insurance companies are owned by their policyholders, and the dividends are distributed to those policyholders based on the company's profitability and the performance of the insurance policies. These dividends are not guaranteed but are usually declared annually if the company has favorable operating results.

In the context of policy dividends, it's important to understand that while stock insurers may pay dividends to their shareholders, these are separate from the policy dividends that mutual companies provide. The idea of a separate account does not apply to policy dividends, as dividends are typically drawn from the overall profits of the mutual company rather than from a distinct investment account. Lastly, dividends in life insurance are not virtually guaranteed; they can vary based on the insurer's operational performance and the specific policy type, making them contingent rather than assured.