Which dividend option reduces premiums?

• A. Cash
• B. Premium reductions
• C. Paid up addition
• D. One year term

Answer: (B)

Dividend options in participating life insurance let you decide how dividends are used. Using dividends to reduce the next premium is the choice that lowers the amount you must pay at the next premium due date, effectively reducing premiums. The insurer applies the dividend to the premium, so your out-of-pocket cost for that period is lowered (or covered).

Taking dividends in cash would give you immediate cash instead of lowering the premium. Using dividends to buy paid-up additions uses them to purchase additional coverage, increasing death benefit and cash value but not reducing the premium. Using dividends to buy a one-year term option adds temporary extra coverage for one year, again not lowering the premium. Remember, dividends are not guaranteed and depend on the insurer’s availability of divisible surplus.