Which of the following is not a dividend option in a life insurance policy?

Which of the following is not a dividend option in a life insurance policy?

• A. Fixed period installments
• B. Cash payment
• C. Reduction of premium payments
• D. Purchase of paid-up additions

Answer: (A)

The selection of fixed period installments as the correct answer is based on understanding the available dividend options typically offered in life insurance policies. Life insurance policies accumulate dividends based on the insurer’s performance, and policyholders can generally use these dividends in several ways. Dividends can often be received as cash payments, which many policyholders choose to take directly. Additionally, policyholders can apply dividends to reduce future premium payments, effectively lowering out-of-pocket expenses. Purchasing paid-up additions is another common option, allowing policyholders to increase their death benefit and cash value by using dividends to buy additional coverage without further underwriting. However, the option of fixed period installments does not traditionally classify as a dividend option. Instead, this option relates more closely to how death benefits can be disbursed. In a scenario where the insured passes away, a fixed period installment option refers to a method of paying out the death benefit over a specified period rather than paying a lump sum. Therefore, it does not pertain to how dividends from the policy are handled. This distinction supports the conclusion that fixed period installments is not a dividend option in a life insurance policy.

The selection of fixed period installments as the correct answer is based on understanding the available dividend options typically offered in life insurance policies. Life insurance policies accumulate dividends based on the insurer’s performance, and policyholders can generally use these dividends in several ways.

Dividends can often be received as cash payments, which many policyholders choose to take directly. Additionally, policyholders can apply dividends to reduce future premium payments, effectively lowering out-of-pocket expenses. Purchasing paid-up additions is another common option, allowing policyholders to increase their death benefit and cash value by using dividends to buy additional coverage without further underwriting.

However, the option of fixed period installments does not traditionally classify as a dividend option. Instead, this option relates more closely to how death benefits can be disbursed. In a scenario where the insured passes away, a fixed period installment option refers to a method of paying out the death benefit over a specified period rather than paying a lump sum. Therefore, it does not pertain to how dividends from the policy are handled. This distinction supports the conclusion that fixed period installments is not a dividend option in a life insurance policy.