Which option is not a valid dividend option for a life insurance policy owner?

• A. Accumulate without interest
• B. Accumulate with interest
• C. Paid-up additions
• D. One-year term insurance

Answer: (A)

Dividends from a participating life policy are meant to be used in specific ways that either increase the policy’s value or extend coverage. Accumulating the dividend with interest means the funds are left on deposit with the insurer and earn credited interest over time. Using dividends to buy paid-up additions adds more paid-up life insurance, increasing both the death benefit and the policy’s cash value. Using dividends to purchase one-year term insurance provides temporary extra coverage for a year.

There isn’t a valid dividend option that leaves dividends accumulating without earning any interest. That option isn’t offered; when you choose to accumulate, the funds are credited with interest.