What is the automatic option called that uses dividends to purchase a single premium policy in addition to the face amount of the permanent policy?

What is the automatic option called that uses dividends to purchase a single premium policy in addition to the face amount of the permanent policy?

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

Answer: (C)

Dividends from a participating permanent policy can be used to add more permanent coverage without new premiums. The option that uses those dividends to buy a small, separate paid-up policy is paid-up additions. Each paid-up addition is funded with a single premium from the dividend, increases the policy’s death benefit, and boosts cash value, all without requiring ongoing payments for that added coverage. This is often set up to happen automatically if you don’t choose another dividend option. The other dividend choices are different: one-year term uses dividends to temporarily increase the death benefit with term insurance for a year, life-income converts the dividends into a lifetime income stream, and the interest-only option leaves dividends to accumulate interest.

Dividends from a participating permanent policy can be used to add more permanent coverage without new premiums. The option that uses those dividends to buy a small, separate paid-up policy is paid-up additions. Each paid-up addition is funded with a single premium from the dividend, increases the policy’s death benefit, and boosts cash value, all without requiring ongoing payments for that added coverage. This is often set up to happen automatically if you don’t choose another dividend option.

The other dividend choices are different: one-year term uses dividends to temporarily increase the death benefit with term insurance for a year, life-income converts the dividends into a lifetime income stream, and the interest-only option leaves dividends to accumulate interest.