South Carolina Life Insurance Practice Exam

What does “cash values can be borrowed at any time” imply about a life insurance policy?

1. It accumulates investment value

2. It has a surrender charge

3. It has no cash value

4. It only pays a death benefit

The correct answer is: It accumulates investment value

The phrase “cash values can be borrowed at any time” indicates that the life insurance policy in question accumulates investment value. This means that the policy builds up a cash value over time, which is a feature typically associated with permanent life insurance policies, such as whole life or universal life insurance. As the policyholder pays premiums, a portion of that money goes towards funding the cash value, which grows at a specified interest rate. This cash value can be accessed by the policyholder through loans or withdrawals, allowing them to use that accumulated value for various financial needs, such as emergencies, education, or retirement. The other options do not align with the implication of being able to borrow against cash values. If the policy had no cash value, then borrowing would not be possible. Similarly, if there were a surrender charge, it would affect the amount received if the policy were surrendered, rather than indicating immediate access to cash value. Lastly, stating that the policy only pays a death benefit suggests that it lacks a cash value component, which contradicts the ability to borrow against the policy. Thus, the correct choice reflects the investment aspect of the life insurance policy's cash value feature.