(a) Except as provided in AS 21.45.220, there shall be a provision in participating policies that, beginning not later than the end of the third policy year, the insurer shall annually ascertain and apportion the divisible surplus, if any, that will accrue on the policy anniversary or other dividend date specified in the policy if the policy is in force and all premiums to that date are paid. Except as hereinafter provided, any dividend becoming payable shall, at the option of the party entitled to elect the option, be either

(1) payable in cash; or

(2) applied to one of the other dividend options that may be provided by the policy; if any other dividend option is provided, the policy must further state which options shall be automatically effective when the party does not elect another option; if the policy specifies a period within which the other dividend option may be elected, the period may not be less than 30 days following the date on which the dividend is due and payable; the annually apportioned dividend shall be payable in cash even though the policy provides that payment of the dividend is to be deferred for a specified period if the period does not exceed six years from the date of apportionment and that interest will be added to the dividend at a specified rate; if a participating policy provides that the benefit under a paid-up nonforfeiture provision is to be participating, it may provide that any divisible surplus becoming payable or apportioned while the insurance is in force under the nonforfeiture provision shall be applied in the manner set out in the policy.

(b) In participating industrial life insurance policies, in lieu of the provision required in (a) of this section, there shall be a provision that, beginning not later than the end of the fifth policy year, the policy shall participate annually in the divisible surplus, if any, in the manner set out in the policy.