Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
A policyowner of a participating whole life policy instructs the insurer to keep the annual dividends with the company so they can earn interest and grow the policy's value. This dividend option is called:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The accumulation-at-interest dividend option leaves dividends on deposit with the insurer, where they earn interest (taxable when credited) and become part of the policy's value. It differs from cash, which is paid out directly; paid-up additions, which buy small amounts of paid-up whole life; and reduced premiums, which apply the dividend toward the next premium.
Why the other options are wrong
- B) The cash option pays the dividend to the policyowner rather than leaving it to earn interest.
- C) Paid-up additions use dividends to purchase additional paid-up coverage, not to accumulate at interest.
- D) Reduced paid-up insurance is a nonforfeiture option used after lapse, not a dividend option.
Memory hook
Accumulation = dividends go into a savings jar at the insurer that pays interest. Parked, not spent, not converted.