What happens to dividends in a one-year term option policy?

In a one-year term option policy, dividends are utilized to purchase additional one-year term insurance. This option allows policyholders to enhance their coverage without needing to commit to a more permanent increase in their insurance. By using dividends in this manner, policyholders effectively maximize the benefits of their policy, as they receive additional insurance protection based on the dividends they have accumulated.

This method of utilizing dividends is particularly advantageous for those who may not want to increase their premium payments but still seek additional coverage for a limited time. It is essential for policyholders to understand how their dividends can enhance their insurance protections, particularly in temporary policies like the one-year term option.

In contrast to the correct choice, other options involve different uses of dividends that do not apply specifically to one-year term insurance policies. For instance, returning dividends as cash, reducing premiums, or accumulating dividends with interest are actions more closely associated with policies designed for cash value accumulation or whole life policies rather than a one-year term option.