South Carolina Life Insurance Practice Exam

Which type of life insurance policy generates immediate cash value?

1. Whole Life

2. Term Life

3. Universal Life

4. Single Premium

The correct answer is: Single Premium

Single premium life insurance policies are designed in a way that they require only one lump-sum payment to be made at the outset. As a result of this single payment, the policy immediately accumulates cash value. This upfront investment allows the insurer to credit growth to the cash value from the very start, unlike other types of life insurance that may take several years to build any significant cash value. Whole life insurance also develops cash value but typically does so slowly over time, with part of each premium contributing to the cash value accumulation. Universal life policies function similarly in that they can accumulate cash value, but the rate at which this occurs can vary based on interest rates and needs for premium payments. Term life insurance, on the other hand, does not build any cash value at all, as it is strictly a death benefit policy designed to cover a specific term or period of time and provides no return of premium or cash value accumulation. Therefore, the unique structure of a single premium policy enables it to generate immediate cash value, distinguishing it from the other types of life insurance mentioned.