Paid-up additions, when dividends are used to purchase more coverage, have what effect?

• A. They increase the death benefit.
• B. They increase policy cash value only.
• C. They create a rider with extra premiums.
• D. They cause a reduction in face amount.

Answer: (A)

Using a policy dividend to buy paid-up additions adds new, fully paid-up life insurance to the contract. This directly increases the death benefit because the face amount now includes the original policy plus the paid-up additions. While those additions also build additional cash value over time, the primary effect described is the higher death benefit. They aren’t a separate rider with extra premiums, and they don’t reduce the face amount; they increase it.