A policyowner may exercise which dividend option that uses the dividend to pay all or part of the next premium due?

• A. Reduction of premium
• B. Accumulation at interest
• C. Cash dividend option
• D. Paid-up additions

Answer: (A)

Dividends from a participating policy can be applied in several ways, and this question focuses on which option uses the dividend to cover the next premium due. The reduction of premium option does exactly that: it applies the dividend to offset all or part of the next premium, reducing the amount the policyowner must pay. The other dividend options serve different purposes—accumulation at interest leaves the dividend with the insurer to earn interest for later use; the cash dividend option pays the dividend in cash to the policyowner; and paid-up additions uses the dividend to buy additional paid-up insurance, increasing the death benefit and cash value rather than reducing the next premium.