Rhode Island Life Insurance Practice Exam

When using dividends to purchase paid-up additions, which factor does NOT determine the amount of coverage that can be purchased?

1. Insured's health

2. Policy's cash value

3. Beneficiary's age

4. Company's dividend policy

The correct answer is: Beneficiary's age

When utilizing dividends to purchase paid-up additions, the amount of coverage that can be acquired is influenced by several factors, but the beneficiary's age is not one of them. The primary factors include the insured's health, as it can affect the overall risk assessment and underwriting decisions, thereby impacting how much coverage can be funded through paid-up additions. The policy's cash value also plays a role, as it determines how much dividends can be accessed for the purchase of additional coverage. Furthermore, the company’s dividend policy is crucial because it sets the guidelines on how dividends are distributed and how they can be used to purchase paid-up additions. In contrast, the age of the beneficiary does not directly influence the amount of coverage that can be purchased with dividends. The purchasing power based on dividends is primarily a function of the insured's characteristics and the specific conditions of the policy itself, rather than the age of the beneficiary, who is not a direct party in the decision-making process for coverage amounts through dividends.