In a 20-pay life policy with a paid-up dividend option, which statement is true?

• A. The policy may be paid up early by using cash values
• B. Dividends are used only to reduce premiums
• C. The policy may be paid up early by using policy dividends
• D. The paid-up status is fixed at issue and cannot be accelerated

Answer: (C)

With a paid-up dividend option, the dividends the policy earns can be used to accelerate the policy’s paid-up status. Specifically, those dividends are applied to purchase paid-up insurance, which reduces or ends the remaining premium obligations and can make the policy fully paid up before the original 20-year premium period is complete. That’s why the statement that the policy may be paid up early by using policy dividends is true.

Dividends aren’t limited to reducing premiums alone, and the paid-up status isn’t fixed at issue. While cash values can be used in other ways (like loans or withdrawals) in some policies, the paid-up option described here centers on using dividends to buy paid-up insurance to speed up becoming fully paid.