Rhode Island Life Insurance Practice Exam

Which type of life insurance is specifically designed to accumulate cash value?

1. Term life

2. Universal life

3. Group life

4. Accidental death insurance

The correct answer is: Universal life

Universal life insurance is specifically designed to accumulate cash value over time. This type of permanent life insurance combines a death benefit with a cash value component that grows based on interest rates set by the insurer. Policyholders have the flexibility to adjust their premiums and death benefits, and the cash value can be accessed during the insured’s lifetime through loans or withdrawals. This feature of accumulating cash value distinguishes universal life from other types of life insurance. Term life insurance does not accumulate cash value; it provides coverage for a specific period and pays a death benefit only if the insured passes away during that term. Group life insurance, which is typically offered by employers, provides benefits without accumulating cash value, as it usually covers a group of individuals under a single policy. Accidental death insurance exclusively pays a benefit in the event of death resulting from an accident and does not build cash value. This makes universal life the correct answer, as it uniquely combines both a death benefit and a cash accumulation feature.