Which dividend option buys additional small amounts of paid-up insurance?

Choosing the option that allows policyholders to buy additional small amounts of paid-up insurance directly relates to the concept of paid-up additions. This dividend option specifically enables the reinvestment of dividends to purchase additional life insurance coverage without requiring further premium payments. The additional coverage accumulates value and provides a death benefit as part of the original policy.

When dividends are paid out in the form of paid-up additions, they not only increase the total coverage amount but also enhance the cash value of the policy, which can be beneficial for both the policyholder and beneficiaries. This option is advantageous as it raises the face value of the policy in a cost-effective manner and contributes to the long-term growth of the policy.

Other options like cash, reduce premium, and accumulate at interest do not specifically pertain to purchasing additional paid-up insurance. Instead, they either provide immediate financial benefits or affect the policy’s premiums or interest earnings, but they do not generate extra coverage as paid-up additions do.