Rhode Island Life Insurance Practice Exam

What is a common benefit of permanent life insurance policies?

1. Lower premiums compared to term life

2. Cash value accumulation over time

3. Flexible premium payments

4. No requirement for medical underwriting

The correct answer is: Cash value accumulation over time

Permanent life insurance policies are designed to provide coverage for the insured's entire lifetime, as long as premiums are paid, and one of their key distinguishing features is the accumulation of cash value over time. This cash value component grows on a tax-deferred basis, meaning that the policyholder does not pay taxes on the growth until they withdraw the funds. The cash value can serve multiple purposes for the policyholder, such as providing a source of funds that can be borrowed against or accessed in times of need. Additionally, policyholders can use the cash value to pay premiums, making it a flexible financial resource. This benefit gives permanent life insurance a unique advantage over term life policies, which do not build cash value and only provide a death benefit during the term of coverage. While lower premiums, flexible premium payments, and the absence of medical underwriting are traits found in some life insurance products, they do not generally apply to all permanent life insurance policies. In contrast, the cash value accumulation is a defining aspect of permanent coverage, making it a commonly recognized benefit among consumers and policyholders.