Which dividend option uses the dividend to pay all or part of the next premium due?

• A. Cash option
• B. Paid-up additions
• C. Extended term
• D. Reduction of premium

Answer: (D)

Dividends from participating life policies can be used in several ways, but the one that uses the dividend to pay all or part of the next premium due is the reduction of premium. In this option, the dividend is applied directly to the upcoming premium, reducing the amount the policyowner must pay or potentially paying the premium in full for the next period. This helps keep the policy in force without additional out-of-pocket cost.

For contrast, the cash option pays the dividend to the policyowner in cash; paid-up additions use the dividend to purchase additional paid-up life insurance; and the extended term option uses the dividend to buy temporary term coverage. Each of these serves a different purpose (extra death benefit, converting cash value into more coverage, or term protection), whereas reduction of premium directly offsets the next premium due.