PSI Life Exam Practice Test

Which of the following dividend options will increase the death benefit?

1. Guaranteed insurability

2. Paid-up additions

3. Cash surrender value

4. Dividends for premium reduction

The correct answer is: Guaranteed insurability

The option that increases the death benefit is paid-up additions. Paid-up additions are a dividend option where the dividends are used to purchase additional, fully paid-up life insurance coverage. This additional coverage, when added to the base policy, increases the overall death benefit provided to beneficiaries. When a policyholder opts for paid-up additions, they are effectively increasing the insurance coverage without needing to demonstrate insurability again, which enhances the policy's value and benefits. While guaranteed insurability allows a policyholder to purchase additional insurance without medical underwriting in the future, it does not directly increase the existing death benefit at the time dividends are received. Dividends for premium reduction and cash surrender value do not contribute to an increase in the death benefit; rather, they serve other financial purposes related to the policy.