Question

K owns a whole life policy. if k wants an increasing death benefit to protect against inflation, whic dividend option should she chose?

a) Cash option
b) Paid-Up Additional insurance
c) Accumulation at interest
d) Reduced paid-up insurance

Answer 1

For an increasing death benefit on a whole life policy, choosing Paid-Up Additional insurance allows dividends to purchase more insurance, increasing the death benefit to protect against inflation.

Step-by-step explanation:

If K owns a whole-life policy and wants an increasing death benefit to protect against inflation, the best dividend option to choose is (b) Paid-Up Additional insurance. This option uses dividends to purchase additional amounts of insurance, which increases the overall death benefit of the policy over time. Essentially, as dividends are declared, they are used to buy more life insurance, adding to the policy's cash value and death protection. This can help in keeping pace with inflation, potentially offsetting the decreased purchasing power of the benefit as time goes by.