Life & Health Insurance Exam (National Portion)Policy Provisions, Options, and RidersEasy
A life insurance policyowner has chosen to receive policy dividends. If the policyowner wants to use these dividends to pay for a portion of the next premium, which dividend option should be selected?
- AOne-Year Term Option
- BReduction of Premium
- CCash Payment
- DAccumulate at Interest
Show answer & explanationAnswer & explanation
Correct answer: B. Reduction of Premium
The Reduction of Premium dividend option allows the policyowner to apply the dividends directly towards the payment of the next premium due, thereby lowering the out-of-pocket cost.
Why the other options are wrong
- A. This option uses dividends to purchase a small amount of additional one-year term insurance.
- C. This option simply pays the dividends directly to the policyowner as a check.
- D. This option allows dividends to accumulate with interest, not to pay premiums.
Reduction of Premium Dividend Option
A life insurance dividend option where the policyowner uses the dividends to offset the cost of the next premium payment.
- Reduces out-of-pocket premium costs.
- Commonly selected option for dividend-paying policies.
- Dividends are not guaranteed.
Memory trick: Dividends can REDUCE your premium, like a helpful discount.