South Carolina Life Insurance Practice Exam

What is a common characteristic of whole life insurance?

1. It offers temporary protection

2. It builds cash value over time

3. It requires periodic medical examinations

4. It only covers accidental death

The correct answer is: It builds cash value over time

Whole life insurance is designed to provide lifelong coverage and one of its defining characteristics is the ability to build cash value over time. This cash value accumulates as a portion of the premium payments are allocated towards investment purposes. The policyholder can access this cash value through loans or withdrawals, providing a financial resource that can be used while still maintaining the coverage of the life insurance policy. In contrast, temporary protection is associated with term life insurance, which does not build cash value and provides coverage for a specific period only. Periodic medical examinations may be required for certain types of insurance or at the time of applying, but they are not a standard characteristic specific to whole life policies. Additionally, coverage limited to accidental death pertains to accidental death and dismemberment policies rather than whole life insurance, which covers death from any cause, provided that the policy is in force. Thus, the correct answer highlights the cash value component as a central feature of whole life insurance.