Which dividend option allows the purchase of small, paid-up policies that increase the original policy's face amount?

The Paid-Up Additions option is the correct choice because it allows policyholders to use their dividends to purchase additional small life insurance policies that are fully paid for at the time of purchase. These additions enhance the coverage by increasing the overall face amount of the original policy without requiring additional premium payments. This is particularly beneficial for policyholders who wish to gradually increase their coverage over time, as these paid-up additions grow in cash value and death benefit.

In contrast, the Cash option involves receiving dividends in cash, which does not increase the policy’s face amount. The Reduction of Premium option uses dividends to offset future premium payments, thereby not affecting the death benefit directly. The One-Year Term option provides temporary coverage for one year, but it does not contribute to the permanent increase of the policy's face amount like the Paid-Up Additions would.