Rhode Island Life Insurance Practice Exam

What is one primary benefit of a policy's cash value?

1. Higher premium costs

2. Immediate death benefit

3. Loan opportunities while living

4. Lower coverage limits

The correct answer is: Loan opportunities while living

One primary benefit of a policy's cash value is the ability to access loan opportunities while living. A cash value life insurance policy, such as whole life or universal life insurance, accumulates a cash value over time as part of the premiums paid. Policyholders can borrow against this cash value, providing liquidity and financial flexibility without having to surrender the policy. This loan can be used for various purposes, such as funding education, covering emergencies, or making investments. In contrast to this benefit, higher premium costs do not contribute positively to the advantages of having a cash value; instead, they can be seen as a drawback for some policyholders. Immediate death benefits, while a fundamental feature of life insurance, are not tied to the cash value aspect specifically. Lower coverage limits do not benefit the policyholder and are not related to the advantages of having cash value. Thus, the opportunity to access loans against the cash value represents a significant financial advantage for those who hold such policies.