Final answer:
The automatic dividend option in a cash-value (whole) life insurance policy is what the insurance company does with the dividends from your policy. The option could be paid-up additions, cash payments, one-year term, or paid-up insurance, and it depends on the policyholder's selection. These options can modify the policy's death benefit, cash value, or premium payment schedule.
Step-by-step explanation:
The automatic dividend option in the context of a cash-value (whole) life insurance policy refers to what the insurance company does with the dividends from your policy. With whole life insurance, you are not just insured, but you also build up a cash value over time. This cash value grows at a guaranteed rate and dividends can be paid out based on the performance of the insurance company's investments.
Concerning your question, the automatic dividend option is not specifically paid-up additions, cash payment, one-year term, or paid-up insurance. However, these are all potential dividend options. The paid-up additions option uses dividends to purchase additional insurance, increasing the policy's death benefit and cash value. The cash payment option sends the dividends to you directly as a check or deposit. The one-year term option applies dividends to buy additional one-year term insurance on top of your whole life coverage. Lastly, the paid-up insurance option uses the dividends to prepay premiums, potentially allowing the policy to be paid-up earlier than planned. The specific option that will be set as the automatic choice can vary depending on the policy and the company's offerings. Policyholders often can select their preferred automatic dividend option when they set up the policy, or they can change it later on.