Which term describes the automatic plan in dividends that increases the policy's cash value by purchasing additional insurance?

Which term describes the automatic plan in dividends that increases the policy's cash value by purchasing additional insurance?

• A. One-year term
• B. Retained asset accounts
• C. Paid-up additions
• D. Favorable tax treatment

Answer: (C)

Paid-up additions are the dividend option that automatically uses dividends to buy additional, fully paid life insurance attached to the policy. Each paid-up addition is a small policy funded by dividends that increases both the policy’s cash value and its death benefit, and it requires no extra premium beyond what’s already paid. Over time, these additions grow the cash value on a tax-deferred basis while boosting the death benefit. Other options don't build cash value through additional insurance—the one-year term would buy temporary term coverage, retained asset accounts simply hold cash, and favorable tax treatment isn’t a specific dividend purchase option.

Paid-up additions are the dividend option that automatically uses dividends to buy additional, fully paid life insurance attached to the policy. Each paid-up addition is a small policy funded by dividends that increases both the policy’s cash value and its death benefit, and it requires no extra premium beyond what’s already paid. Over time, these additions grow the cash value on a tax-deferred basis while boosting the death benefit. Other options don't build cash value through additional insurance—the one-year term would buy temporary term coverage, retained asset accounts simply hold cash, and favorable tax treatment isn’t a specific dividend purchase option.