Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
Which of the following is a standard dividend option available under a participating life insurance policy?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The five standard dividend options are cash, accumulation at interest, paid-up additions, reduction of premium, and one-year term (with a cash or paid-up additions basis). Under paid-up additions, the dividend buys additional fully paid-up life insurance that increases the total death benefit and cash value. This option is popular because the additions themselves earn future dividends.
Why the other options are wrong
- B) Reducing the death benefit is not a dividend option; the standard options are cash, accumulation, paid-up additions, reduced premium, and one-year term.
- C) Crediting dividends as principal on policy loans is not one of the recognized dividend options.
- D) Mutual company policyowners do not buy stock with dividends; a dividend option that purchases stock does not exist in the standard list.
Memory hook
Five dividend doors: cash, accumulation, paid-up additions, reduced premium, one-year term. Additions grow the policy.