Life Policy ProvisionsQuestion 570 of 716
Electing to use policy dividends to buy paid-up additions will:
a.Reduce the base policy's death benefit dollar for dollar as each annual dividend is applied to the contract
b.Convert the base policy to term insurance
c.Pay the dividends out to the owner in cash each year
d.Purchase small amounts of additional permanent coverage that also build cash value
Explanation
Paid-up additions use dividends to buy little blocks of fully paid permanent insurance, increasing both death benefit and cash value. This option adds coverage rather than reducing it, paying cash, or converting the policy.
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PrepPass team · Verified against California Life & Health Insurance License Exam · How we review
Reviewed by John Zihao Zhang — California-Licensed Life Insurance Agent (CA Dept. of Insurance License #4396095 — verify)