Which of the following is a dividend option available to life insurance policy owners?

• A. Elimination periods
• B. Disability income
• C. Paid-up additions
• D. Nonforfeiture option

Answer: (C)

Dividend options are the ways a participating life policy owner can use declared dividends to modify the policy. The option that uses dividends to purchase additional paid-up life insurance is paid-up additions. These additions are small, fully paid-up policies funded by dividends, which increase the overall death benefit and also add to the cash value. Because they’re paid-up, no further premiums are required for the added coverage, and these added amounts can themselves earn future dividends.

The other items don’t fit as dividend options: elimination periods are waiting periods commonly found in disability income policies, not a way to allocate dividends; disability income refers to the benefit itself rather than a dividend option; and nonforfeiture options relate to what happens to cash value if the policy lapses or is surrendered, not a method of using dividends.