Dividends can be used to purchase a one-year term policy for a year. Which term policy is this?

Dividends can be used to purchase a one-year term policy for a year. Which term policy is this?

• A. Paid-up additions
• B. One-year term
• C. Life-income option
• D. Interest only option

Answer: (B)

Dividends on a participating policy can be used in several ways to adjust coverage, and one common option is to purchase a one-year term policy. This means the dividend funds a temporary term insurance amount for one year, adding to the death benefit without any extra out-of-pocket premium. The idea is to provide extra protection for a short planned need or during a period of higher risk, with the term coverage typically renewable after the year at rates appropriate for the insured’s age. This is distinct from paid-up additions, which buy permanent, increasing cash value and death benefit, and from the life-income or interest-only options, which convert dividends into income or leave them deposited to earn interest.

Dividends on a participating policy can be used in several ways to adjust coverage, and one common option is to purchase a one-year term policy. This means the dividend funds a temporary term insurance amount for one year, adding to the death benefit without any extra out-of-pocket premium. The idea is to provide extra protection for a short planned need or during a period of higher risk, with the term coverage typically renewable after the year at rates appropriate for the insured’s age. This is distinct from paid-up additions, which buy permanent, increasing cash value and death benefit, and from the life-income or interest-only options, which convert dividends into income or leave them deposited to earn interest.