In life insurance, an arrangement under which one-year term additions are purchased each year out of current dividends, or any dividend accumulations, in an effort to maintain level protection for a period at least up to the insured's retirement age. Often used with a split-dollar plan.
a life insurance dividend option sometimes utilized under a split-dollar arrangement whereby policy dividends are used to purchase one-year term insurance in the amount of the cash value increase in the policy each year to help make up for the decline in the employee's share of the death benefit through split-dollar arrangements or borrowing
The fifth dividend option is a dividend option in a participating life insurance policy under which an amount of one-year term life insurance equal to the policy's cash value is purchased each year by application of the dividend. Any dividend declared in excess of the amount required to purchase the term insurance can be applied under one of the other dividend options.
See additional term insurance option.
A provision in cash value life insurance whereby dividends can be used to purchase increasing term insurance.
A dividend option in which the annual dividend is used to purchase one-year term insurance at a specified amount (equal to the guaranteed cash value, for example). Any excess can be applied under another dividend option. If the dividend is insufficient to pay the term premium, the amount of coverage will decrease. Some companies allow the policyowner to make up the shortage or reduce it with accumulated dividends. Since the coverage is one-year term, premiums can become quite expensive at older ages.