Arkansas Life and Health Insurance Practice Exam

Concerning the Paid-Up Additions Dividend Option, which of the following is not true?

1. Policyholders purchase additional amounts of insurance

2. Excess cash dividends are used to pay additional amounts of insurance

3. Eventually, no more premiums will be due on the policy

4. The dividends may vary but they are applied to purchase more coverage

The correct answer is: Policyholders purchase additional amounts of insurance

The Paid-Up Additions Dividend Option allows policyholders to use excess cash dividends to purchase additional amounts of insurance. This means that policyholders can increase their coverage without having to pay additional premiums. Eventually, with this option, no more premiums will be due on the policy. Also, the dividends used to purchase more coverage can vary. Therefore, option A is incorrect as policyholders do not purchase additional amounts of insurance with this dividend option; instead, it is the excess cash dividends that are utilized for this purpose.