South Carolina Life Insurance Practice Exam

Which type of policy should an applicant choose if she wants a cash value element?

1. Term Life Insurance

2. Universal Life Insurance

3. Whole Life Insurance

4. Accidental Death Insurance

The correct answer is: Whole Life Insurance

Choosing a whole life insurance policy is the most appropriate option for someone seeking a cash value element. This type of policy provides a death benefit to beneficiaries while also accumulating cash value over time. The cash value grows at a guaranteed rate and can be accessed by the policyholder through loans or withdrawals, although doing so may reduce the death benefit and could incur additional charges. In contrast, term life insurance does not build any cash value. It is designed solely to provide coverage for a specific period, paying out a death benefit if the insured passes away during that term. Once the term ends, the policyholder does not receive any cash value, and coverage stops unless renewed. Universal life insurance also has a cash value component, but it allows for more flexibility in premium payments and death benefits. However, whole life insurance offers a consistent cash value growth and guaranteed premiums for the life of the policy, making it a solid choice for someone focused specifically on cash accumulation. Accidental death insurance provides a payout only if the insured dies due to an accident. It lacks any cash value element altogether, making it unsuitable for someone looking to build a cash reserve. Therefore, whole life insurance is the best choice for those wanting an insurance product that includes a cash value component.