Question 77

The insured may pay up the policy early by using policy dividends.

In a 20-pay life policy with a paid-up dividend option, the insured can utilize policy dividends to pay off the policy sooner than the standard payment schedule.

A) use policy dividends to reduce the premium after 20 years

This option is incorrect because the paid-up dividend option allows for the early payment of the policy, rather than merely reducing premiums after 20 years. The focus of this option is on using dividends to pay off the policy early, not to lower future premiums.

B) pay up the policy early by using policy dividends

This option is correct as it accurately reflects the benefit of the paid-up dividend option in a 20-pay life policy. By utilizing the dividends accrued, the insured can settle the policy before the full 20 years, thus achieving paid-up status sooner.

C) pay up the policy early by using accumulated cash values

This option is incorrect because it suggests using cash values rather than dividends to pay off the policy early. While cash values can be used in other types of policies, the question specifically mentions the use of dividends in a paid-up option.

D) waive premium payments until the policy has accumulated enough cash values to pay it up for 20 years

This option is incorrect as it does not align with the mechanics of a paid-up dividend option. The insured does not waive premiums for the purpose of accumulating cash values; instead, they actively use dividends to pay off the policy early.

Conclusion

The correct answer, B, is definitively right as it directly describes the function of the paid-up dividend option in a 20-pay life policy. All other options fail to accurately represent this feature, either by misunderstanding the use of dividends or by incorrectly suggesting alternative methods of policy management.