Florida 2-15 Life, Health and Variable Annuity AgentGeneral Knowledge of Life InsuranceMedium
A client owns a participating whole life insurance policy and has chosen the 'Paid-Up Additions' dividend option. How does this option affect their policy?
- AThe dividends are used to reduce the next premium payment.
- BThe dividends are paid out in cash directly to the policyowner.
- CThe dividends purchase small, single-premium, paid-up whole life policies that increase the death benefit and cash value.
- DThe dividends are left with the insurer to accumulate interest, which is taxable.
Show answer & explanationAnswer & explanation
Correct answer: C. The dividends purchase small, single-premium, paid-up whole life policies that increase the death benefit and cash value.
The Paid-Up Additions dividend option uses policy dividends to purchase small, single-premium, paid-up whole life policies. Each addition increases both the policy's death benefit and its cash value, without requiring additional premium payments from the policyowner.
Why the other options are wrong
- A. This describes the 'Reduction of Premium' dividend option.
- B. This describes the 'Cash Payment' dividend option.
- D. This describes the 'Accumulate at Interest' dividend option.
Paid-Up Additions Dividend Option
A dividend option where policy dividends are used to purchase small, single-premium, paid-up whole life policies. These additions increase both the death benefit and the cash value of the original policy.
- Uses dividends to buy more insurance
- Each addition is a small, fully paid-up whole life policy
- Increases the total death benefit of the policy
- Increases the cash value of the policy
- No further premiums required for the additions
Memory trick: Paid-Up Additions: Dividends buy more death benefit and cash value.