Primerica Life Producer Practice Test

What is the paid-up option in life insurance?

1. To convert term life to whole life

2. To pay policy premiums in one lump sum

3. To accumulate dividends and pay the policy up early

4. To increase the death benefit

The correct answer is: To accumulate dividends and pay the policy up early

The paid-up option in life insurance refers to a feature that allows policyholders to accumulate dividends and apply them toward the policy's cash value, ultimately resulting in the policy being considered fully paid off before the end of its term. When a policyholder chooses this option, they can use the dividends earned on their policy to reduce future premium payments or completely pay off the policy, thus eliminating the need for further premiums while still keeping the insurance coverage in force. This option is particularly beneficial for policyholders who may want to stop making premium payments but wish to maintain their life insurance coverage. By utilizing accumulated dividends, the policy can effectively be transformed into a paid-up policy without any additional out-of-pocket costs. This means the policyholder retains their coverage and can benefit from it without the ongoing expense of premium payments. The other options either do not accurately describe the paid-up option or pertain to different features of life insurance policies. For example, converting term life to whole life relates to changing the type of policy rather than paying up an existing one. Paying policy premiums in one lump sum refers to a full upfront payment, which does not involve dividends. Increasing the death benefit typically refers to changing the amount of coverage rather than the status of premium payments.