The participating policy dividend option that uses dividends to purchase additional paid-up whole life insurance 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 option uses each dividend to buy small amounts of fully paid-up whole life insurance, thereby increasing both the death benefit and the cash value without requiring evidence of insurability. It is one of the standard dividend options, along with cash, accumulation at interest, reduced premium, and one-year term. The purchased additions are paid up and cannot lapse, so they add permanent value to the policy. This option is popular with clients who want their coverage to grow over time using the policy's dividends. The additions also earn future dividends themselves.
Why the other options are wrong
- The cash dividend option pays the dividend directly to the policyowner in cash, giving no additional coverage.
- The reduced premium option applies the dividend to offset the next premium due, reducing the owner's out-of-pocket payment.
- The accumulation at interest option holds the dividends in the policy, earning interest, but does not purchase additional coverage.
Memory hook
Paid-up additions = dividends buy more paid-up life. Every dividend grows your coverage a little.