What is additional coverage purchased with dividends called?

What is additional coverage purchased with dividends called?

• A. Accumulated dividends
• B. Paid-up addition
• C. Loan value
• D. Term policy

Answer: (B)

The correct terminology for additional coverage that is purchased with dividends in a traditional life insurance policy is "paid-up addition." When a policyholder receives dividends from their whole life insurance policy, they typically have the option to use those dividends to buy additional life insurance coverage. These purchased additions are fully paid for and provide a death benefit without requiring further premium payments. Paid-up additions increase both the death benefit and the cash value of the policy over time. This is a common strategy for policyholders who wish to enhance the benefits of their original policy using the dividends earned. Accumulated dividends refers generally to the dividends that have not yet been taken or utilized but do not specifically indicate an enhancement in coverage. Loan value pertains to the amount that a policyholder can borrow against their policy, and a term policy is a specific type of life insurance that provides coverage for a set period and does not accumulate cash value or dividends.

The correct terminology for additional coverage that is purchased with dividends in a traditional life insurance policy is "paid-up addition." When a policyholder receives dividends from their whole life insurance policy, they typically have the option to use those dividends to buy additional life insurance coverage. These purchased additions are fully paid for and provide a death benefit without requiring further premium payments.

Paid-up additions increase both the death benefit and the cash value of the policy over time. This is a common strategy for policyholders who wish to enhance the benefits of their original policy using the dividends earned. Accumulated dividends refers generally to the dividends that have not yet been taken or utilized but do not specifically indicate an enhancement in coverage. Loan value pertains to the amount that a policyholder can borrow against their policy, and a term policy is a specific type of life insurance that provides coverage for a set period and does not accumulate cash value or dividends.