Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
Under the paid-up additions dividend option on a participating whole life policy, policy dividends are used to:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The paid-up additions option uses each dividend to buy additional paid-up whole life insurance, which itself earns dividends and builds cash value. This increases both the death benefit and the policy's cash value over time. The other dividend options under objective LIFE-II.E.10 include cash, accumulation at interest, reduced premium, and one-year term - each distributing the dividend differently.
Why the other options are wrong
- B) Reducing the next premium is the reduced premium option, not paid-up additions.
- C) Accumulating dividends at interest is the accumulation option, a side fund rather than new insurance.
- D) Buying one-year term insurance is the fifth dividend option, separate from paid-up additions.
Memory hook
Paid-up additions: dividends buy more permanent coverage that grows the face amount.