Rhode Island Life Insurance Practice Exam

A whole life policy is primarily distinguished by what feature?

1. Flexible premium payments

2. Temporary coverage

3. Cash value accumulation

4. Investment options

The correct answer is: Cash value accumulation

A whole life policy is primarily distinguished by its cash value accumulation feature. This means that as the policyholder pays premiums, a portion of those payments goes into a cash value account that grows over time, typically at a guaranteed interest rate. This cash value can be accessed by the policyholder during their lifetime, either through loans against the policy or by surrendering the policy for its cash value. This accumulation feature is a defining characteristic of whole life insurance, setting it apart from other types of life insurance, such as term life, which does not have cash value. Other options do not accurately reflect the main feature of whole life insurance. Flexible premium payments are more characteristic of universal life insurance, which allows policyholders to adjust the amount and frequency of their premium payments. Temporary coverage aligns with term life insurance, which provides coverage for a specific period without any cash value component. Finally, investment options are generally associated with variable life insurance policies, where policyholders can allocate cash values to various investment vehicles. Therefore, cash value accumulation is what primarily distinguishes whole life policies from others.