Final answer:
The automatic dividend option for a cash-value life insurance policy typically refers to 'paid-up additions', where dividends are used to buy additional coverage automatically.
Step-by-step explanation:
The automatic dividend option in the context of a cash-value (whole) life insurance policy refers to the way dividends are utilized by the policyholder. With this type of insurance, not only is there a death benefit, but there is also a cash value component that accumulates over time and can serve as a financial account. The four options generally available for dividends on such policies are: paid-up additions (additional coverage), cash payment (dividends paid in cash directly to the policyholder), one-year term (purchase of additional one-year term insurance), and paid-up insurance (premiums are considered paid, and the policy remains in force without further payment).
The correct answer to the student's question, "The automatic dividend option is:", referring to a typical cash-value life insurance policy, would be paid-up additions, since this option is frequently set up to happen automatically when the policy generates dividends.