Massachusetts Life Producer Practice Exam

What condition must be met for a life insurance policy with dividends left with the insurance company to be paid up?

1. Cash value must equal the total premiums paid

2. Cash value plus accumulated dividends must equal the net single premium for the same face amount

3. Dividends must be greater than the face amount

4. All dividends must be paid in cash

The correct answer is: Cash value plus accumulated dividends must equal the net single premium for the same face amount

For a life insurance policy with dividends left with the insurance company to be paid up, the condition that must be met is that the cash value plus accumulated dividends must equal the net single premium for the same face amount. This condition indicates that the policy has accumulated sufficient value to cover the cost of the policy without requiring further premium payments, leading to a "paid-up" status. In practical terms, when a policyholder opts to leave dividends with the insurer, those dividends can earn interest and contribute to the overall cash value of the policy. Over time, if this total—comprising both cash value and accumulated dividends—reaches or exceeds the net single premium for the same amount of coverage, the policy can be converted to a paid-up status. This is an important aspect because it ensures that the policyholder does not need tocontinue making premium payments while still maintaining coverage. To contrast with the other options, the first choice discusses the total premiums paid, which does not necessarily reflect the future value growth of the policy through dividends. The third choice about dividends needing to be greater than the face amount is not a requirement for policy activation or conversion; dividends serve merely as a return on premiums or a source for policy enhancements. Lastly, the fourth option stating