Basil purchased a life insurance policy from a mutual insurer that has a low premium and a face amount that diminishes after a few years. Policy dividends are used to buy paid-up additions to keep insurance equal to the amount of the reduction. What type of policy has Basil purchased?

Several names apply, but they are all the same: economatic life insurance, economy life insurance, enhanced ordinary life, extra ordinary life and probably a few more names.

Explanation:

They all refer to the same type of policy, which is a combination of whole life and term life insurance. As its name probably suggests, it is a cheaper way of obtaining insurance since the dividends yielded are used to buy paid up coverage in the same policy so after a predetermined set of years the policy turns into a whole life policy.

Economatic whole life policy

Explanation:

This is a type of life insurance policy that combines whole life with a term rider, where dividends are earned and used to buy paid-up coverage.