South Carolina Life Insurance Practice Exam

If an insured withdraws a portion of their policy's cash value, which type of policy do they most likely have?

1. Term Insurance

2. Whole Life Insurance

3. Universal Life Insurance

4. Variable Life Insurance

The correct answer is: Universal Life Insurance

The correct answer is Universal Life Insurance. This type of policy is designed with flexibility in premium payments and the ability to accumulate cash value over time. When an insured withdraws a portion of their policy's cash value, it suggests that the policy has a savings or investment component, which is characteristic of universal life insurance. Universal life insurance allows policyholders to build cash value that can be accessed through withdrawals or loans. The policyholder can manage the amount of premium paid and how much of the premium goes into the cash value account. This innovative feature gives the policyholder the ability to adjust their coverage and contributions based on their current financial needs. While whole life insurance also accumulates cash value, it generally does not allow for flexible withdrawals in the same manner, as it typically emphasizes the death benefit and not the cash value accessibility. Term insurance, on the other hand, does not build cash value at all and is strictly coverage for a predetermined period. Variable life insurance does allow for cash value but is more focused on investment options tied to various accounts, making it less likely that a simple withdrawal would be typical compared to the straightforward access offered by universal life policies.