AD Banker Comprehensive Practice Exam

Regarding the Paid-Up Additions Dividend Option, which statement is NOT true?

1. Paid-up additions increase future dividends

2. No more premiums will be due on the policy

3. Paid-up additions have their own increasing cash values

4. These additions do not change the face value of the original policy

The correct answer is: No more premiums will be due on the policy

The Paid-Up Additions Dividend Option allows policyholders to use their dividends to purchase additional amounts of paid-up insurance, which increases the total death benefit. When analyzing this option, it's important to understand what each statement means. The statement that suggests no more premiums will be due on the policy is not true, as paid-up additions are specifically an incremental benefit that enhances the overall coverage without requiring additional premium payments for those specific additions. However, the base policy may still require premiums to be paid unless it has been fully paid up or meets the conditions that allow it to remain in force without further premiums. On the other hand, the other statements hold true. Paid-up additions indeed can lead to an increase in future dividends because the additional insurance may yield dividends based on the increased cash value. The paid-up additions themselves can accumulate their own cash values over time, resulting in a gradual increase in the policy's worth. However, these additions do not impact the original face value of the policy; they simply enhance the existing coverage by creating additional, paid-up insurance.