Using policy dividends to purchase paid-up additions increases what aspect of a life insurance policy?

Using policy dividends to purchase paid-up additions increases both the death benefit and the cash value of a life insurance policy. Paid-up additions are additional amounts of paid-up insurance that can be purchased using the dividends generated by the policy.

When these additions are acquired, they typically increase the total death benefit because they represent extra coverage added to the original policy. Additionally, paid-up additions also contribute to the policy's cash value, which is the savings component of the life insurance that grows over time. Since these additions accumulate cash value, they can be accessed through loans or withdrawals by the policyholder if needed.

This mechanism provides policyholders with a means to enhance their insurance coverage and savings potential without having to outlay additional premium payments. Therefore, choosing to use dividends for paid-up additions positively impacts both the death benefit and the cash value, making this answer the most comprehensive in reflecting the benefits derived from such a strategy.