What happens if a participating policyholder is eligible for a dividend surplus?

When a participating policyholder is eligible for a dividend surplus, it is essential for the insurance company to maintain clear communication with them regarding their entitlement. The correct choice indicates that the company must notify the policyholder no later than after the third policy year.

This requirement stems from the nature of participating policies, which provide policyholders with the opportunity to receive dividends based on the company's surplus earnings. By the end of the third policy year, the insurer is obligated to assess the financial performance and profitability and subsequently communicate any dividend entitlement. This ensures policyholders are kept informed of their potential benefits from the policy and aligns with best practices for transparency in the insurance industry.

The other options emphasize various aspects of policyholder rights and company responsibilities but do not accurately reflect the legal or common industry practice regarding the timing of dividend notifications in participating life insurance policies.