Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A policyowner elects the paid-up additions dividend option on a participating policy. The dividends will be used to:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Under the paid-up additions option, each dividend purchases a small amount of fully paid-up permanent insurance. Each addition increases the total death benefit and adds to the policy's cash value, and the additions themselves become eligible for future dividends. This option builds coverage and values over time without new underwriting or medical evidence, making it a popular way to let a participating policy grow.
Why the other options are wrong
- B) Using the dividend to lower the amount due describes the reduced premium option, not paid-up additions.
- C) Paying off policy loans is not one of the standard dividend options; the standard choices are cash, accumulation, paid-up additions, reduced premium, and one-year term.
- D) Buying term coverage describes the one-year term option; paid-up additions buy permanent, fully paid coverage.
Memory hook
Paid-up additions = dividends buy mini policies that make the death benefit and cash value grow like compounding snowballs.