Question

Which of the following is not true about the accumulation of interest dividend option?

a. Dividends left to accumulate at interest are part of the policy's cash value.
b. The option allows the insurer to retain the dividend.
c. The dividend earns a rate of interest specified in the policy.
d. Policyowner can withdraw dividend tax-free.

Answer 1

The accumulation of interest dividend option does not allow policyowners to withdraw dividends tax-free.

Step-by-step explanation:

The correct answer is d. Policyowner can withdraw dividend tax-free. This statement is not true about the accumulation of interest dividend option. While dividends left to accumulate at interest are part of the policy's cash value (a), the option does allow the insurer to retain the dividend (b), and the dividend does earn a rate of interest specified in the policy (c), the policyowner cannot withdraw the dividend tax-free. Dividends are generally subject to taxes, and policyowners would need to report them as income on their tax returns.