Question 28

Paid-up additions will increase the death benefit.

Choosing paid-up additions as a dividend option directly contributes to increasing the death benefit of a life insurance policy. This option allows policyholders to purchase additional coverage using dividends, which enhances the overall value of the policy upon the insured's death.

A) Extended term.

Extended term is a non-forfeiture option that converts the cash value of a whole life policy into term insurance for a specified period. While it maintains coverage, it does not increase the death benefit; rather, it provides coverage for a limited time without enhancing the overall value of the policy.

B) Guaranteed insurability.

Guaranteed insurability is a rider that allows the policyholder to purchase additional insurance at specific times without providing proof of insurability. However, this option does not increase the death benefit of the existing policy but rather offers future opportunities to obtain more coverage.

C) Accelerated endowment.

Accelerated endowment refers to a policy structure where the cash value accumulates faster, potentially allowing for earlier payouts. However, this option does not increase the death benefit itself; it only alters the timing of the benefit.

D) Paid-up additions.

Paid-up additions are a dividend option that allows policyholders to buy additional paid-up insurance with their dividends. This directly increases the death benefit since the additional coverage paid for with dividends adds to the total insurance amount available to beneficiaries upon death.

Conclusion

Paid-up additions are the only option that directly contributes to an increase in the death benefit, making it the correct choice. The other options either provide temporary coverage, future insurability, or modify the cash value without enhancing the death benefit, underscoring the unique advantage of paid-up additions in strengthening the policy's overall value.