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. Which of the following is an accurate result of choosing this option?
- AThe policy's cash value decreases.
- BThe client receives a cash payment from the insurer.
- CThe death benefit remains unchanged.
- DThe policy's cash value and death benefit increase.
Show answer & explanationAnswer & explanation
Correct answer: D. The policy's cash value and death benefit increase.
Paid-Up Additions use the policy's dividends to purchase small, single-premium whole life policies. Each addition has its own cash value and death benefit, which are added to the original policy's values, thus increasing both the overall cash value and the total death benefit.
Why the other options are wrong
- A. Paid-up additions increase the cash value, they do not decrease it.
- B. Receiving a cash payment is the 'Cash Dividend Option', not Paid-Up Additions.
- C. Paid-up additions increase the death benefit, they do not leave it unchanged.
Paid-Up Additions Dividend Option
A life insurance dividend option where dividends are used to purchase small, single-premium whole life policies, which in turn increase the policy's cash value and death benefit.
- Uses dividends to buy more insurance.
- Increases both cash value and death benefit.
- Each addition is a fully paid-up whole life policy.
Memory trick: Paid-Up Additions: Dividends BUY more benefit and cash.