Washington Life Producer Practice Exam

Which dividend option allows a policyowner to use dividends toward premium payments?

1. Cash dividend option

2. Reduction of premium dividend option

3. Paid-up additions

4. Accumulation at interest

The correct answer is: Reduction of premium dividend option

The option that allows a policyowner to use dividends toward premium payments is the reduction of premium dividend option. This method directly utilizes the dividends received from a life insurance policy by applying them to the policyholder's premium balance. As a result, the policyowner benefits by effectively reducing the amount of cash they need to pay for their insurance coverage each year. Utilizing this option is advantageous as it helps maintain the policy without requiring an additional outlay of income. It can be particularly useful for policyowners who might be looking for more manageable premium payments while keeping their coverage intact. The other options have different purposes—cash dividends provide a cash payout to the policyowner, while paid-up additions use dividends to purchase additional insurance coverage, thus increasing the death benefit. Accumulation at interest involves the insurer holding the dividends and paying interest on them, but does not directly apply them to premium payments. Each of these alternatives serves its own unique financial strategy, but for directly reducing premium costs, the reduction of premium dividend option is the appropriate choice.