South Carolina Life Insurance Practice Exam

What term best describes an arrangement where an insured receives an annual life insurance dividend check?

1. Interest Payment

2. Cash Option

3. Deductions

4. Policy Accrual

The correct answer is: Cash Option

The arrangement in which an insured receives an annual life insurance dividend check is accurately described by the term known as the Cash Option. This concept refers to the choice available to policyholders to receive any dividends in the form of cash payments, rather than reinvesting them into the policy or applying them towards future premiums. Choosing the Cash Option allows the insured to receive immediate benefits from their policy, providing liquidity and flexibility. This can be especially advantageous for policyholders who may need cash for expenses or prefer to use dividends as additional income. While other terms may relate to financial aspects of an insurance policy, they do not specifically capture the nature of receiving dividends directly in cash. Interest payments typically refer to earnings on savings or investment accounts, deductions usually relate to amounts subtracted for expenses or tax purposes, and policy accrual refers to the accumulation of benefits or cash value within the policy itself. Thus, the Cash Option is the most fitting term for this arrangement.