Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A participating policyowner wants each annual dividend to buy additional paid-up insurance coverage. 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 paid-up additions dividend option uses the dividend to purchase additional paid-up whole life coverage, which itself builds cash value and may earn future dividends. This is a popular option because it increases both the death benefit and the policy's cash value over time without any medical underwriting. It provides compounding growth of both protection and savings.
Why the other options are wrong
- B) The cash option pays the dividend to the policyowner in cash, adding no additional coverage.
- C) Accumulation at interest leaves the dividend with the insurer to earn interest but adds no insurance protection.
- D) Reduced premium applies the dividend toward the next premium, reducing the amount the policyowner must pay out of pocket.
Memory hook
Paid-up additions = dividends buy tiny whole life policies that build their own cash value; compound your coverage.