How does the cash dividend option affect the insured’s future premium payments?

When a policyholder selects the cash dividend option, the insurer provides dividends based on the policy's performance, often due to the company's profitability or lower-than-expected claims. These dividends can be used in various ways, one of which includes reducing the future premium payments for the insured.

When dividends are applied towards the premium, they effectively lower the amount the policyholder needs to pay out of pocket for their next premium due. This reduction occurs because the dividend amount is deducted from the total premium owed. Therefore, the correct understanding in this context is that the cash dividend directly decreases the future premium payments, making it a beneficial feature for policyholders who choose this option, as it enhances affordability in maintaining their life insurance coverage.