How does a term addition work in a life insurance policy?

A term addition in a life insurance policy functions by providing additional temporary coverage, typically for a specific duration, often one year. This type of feature allows policyholders to increase their coverage without committing to a permanent addition. When you choose a term addition, you essentially purchase a one-year non-renewable term rider, which offers the benefits of increased coverage during that year without affecting the underlying permanent policy's structure.

As the term addition only lasts for the designated period and is not renewable, it addresses immediate insurance needs or provides extra coverage for significant life events, such as the birth of a child or a mortgage obligation. This means the extra coverage is not intended to contribute to the cash value of the policy and is separate from the guaranteed or permanent coverage.

The other options do not accurately capture the essence of a term addition, as a permanent addition implies a long-term increase in coverage and possibly cash value, while allowing dividends to accumulate does not relate to a term addition at all. Similarly, a term addition does not increase the cash value of the policy permanently, as cash value growth is typically associated with permanent life insurance products.