Which statement is CORRECT about paid-up additions in a participating whole life policy?

In a participating whole life policy, paid-up additions are a form of additional insurance that can be purchased using dividends from the policy. These additions increase the policy's cash value and death benefit, but they do so in a manner that aligns with the insured's current age and risks.

When paid-up additions are described as being purchased on an attained age basis, it means that the cost of these additions is based on the policyholder's age at the time of purchase. As the insured gets older, the premium for the additional coverage may increase, reflecting the higher risk associated with age. This mechanism allows policyholders to adjust their coverage without undergoing a medical exam, thereby making it a flexible option for enhancing coverage.

Furthermore, the other options do not accurately represent paid-up additions. For instance, while paid-up additions do contribute to the overall death benefit, they are not necessarily permanent increases as the base policy may also undergo other adjustments. Additionally, the guarantees associated with these additions are contingent on the performance of the insurance company and its ability to pay dividends, which means they are not guaranteed regardless of performance. Lastly, paid-up additions do not replace the original policy premium; instead, they function as an ancillary benefit that enhances the policy's value.