Arizona Life and Health Practice Exam

Which dividend option would be best for a life insurance policy owner looking for a limited current outlay of funds?

1. Cash payment option

2. Reduction of premium payments

3. Paid-up additions

4. Accumulate at interest

The correct answer is: Reduction of premium payments

Choosing the reduction of premium payments as a dividend option is advantageous for a life insurance policy owner who wishes to minimize their current outlay of funds. This option effectively allows the policyholder to use the dividends earned from the policy to offset their premium due, reducing the out-of-pocket expense for maintaining the policy. This is particularly appealing for individuals who may be seeking to conserve cash flow while still keeping their insurance coverage. It ensures the policy remains in force without requiring additional cash from the insured's budget, making it a suitable choice for those prioritizing limited expenditures. In contrast, cash payment would require the policyholder to receive a check, which does not benefit them in terms of reducing their ongoing financial commitment. Paid-up additions involve using dividends to purchase additional life insurance coverage, which can increase the overall premium obligations. Accumulating dividends at interest allows for future growth but does not provide immediate relief from premium payments, still necessitating payment of the full premium amount.