Which statement about mutual insurance companies is incorrect?

The statement regarding policy dividends issued by mutual companies being guaranteed and not taxable is incorrect because, while mutual insurance companies may pay dividends to policyholders based on the company's performance, these dividends are not guaranteed. They are often contingent on the company's financial results and are declared at the discretion of the board of directors. Furthermore, while dividends from mutual insurance companies are typically considered a return of premium and can thus have tax implications, they may not be fully nontaxable. Generally, any dividends that exceed the amount of premiums paid may be subject to taxation.

The other statements about mutual insurance companies accurately reflect their characteristics. Policyholders do indeed share in a mutual company’s divisible surplus through dividends. The policies issued by mutual companies are known as participating because policyholders can participate in the company's profits. Additionally, if a mutual company chooses to go public, it undergoes a process known as demutualization, transforming from a mutual insurance structure to a stock-based one, which alters the ownership and profit-sharing structure of the company.