South Carolina Life Insurance Practice Exam

Which option describes a type of policy with a permanent cash value accumulation?

1. Term policy

2. Universal policy

3. Whole Life policy

4. Variable policy

The correct answer is: Whole Life policy

A type of policy that includes permanent cash value accumulation is characterized by its ability to build a cash component over time, providing both insurance coverage and a savings element. Whole Life insurance is designed to offer lifetime coverage and guarantees a death benefit to the policyholder's beneficiaries upon death, as well as the potential for the policy to accumulate cash value. This cash value grows at a predetermined rate and can be accessed by the policyholder during their lifetime through loans or withdrawals. The nature of Whole Life policies ensures that policyholders are provided with a stable and reliable means of accumulating savings, along with the security of knowing that their beneficiaries will receive a death benefit. This dual benefit of cash value and lifelong insurance coverage is what distinguishes Whole Life policies from those that do not accumulate cash value, like Term policies, which offer coverage for a specified period but do not provide any cash accumulation. Universal policies also offer cash value accumulation but with more flexibility regarding premiums and death benefits compared to Whole Life policies. Variable policies involve investment options that can affect cash value but come with significantly higher risk and volatility compared to the guaranteed nature of Whole Life policies.