Washington Life Producer Practice Exam

All of the following statements concerning whole life insurance are false EXCEPT?

1. Whole life policies never accumulate cash value

2. Whole life policies always provide limited benefits

3. A whole life policy is non-cancellable

4. When a whole life policy is surrendered, income taxes may be owed

The correct answer is: When a whole life policy is surrendered, income taxes may be owed

Whole life insurance is a type of permanent insurance that offers not only a death benefit but also accumulates cash value over time, which is one reason why option D stands out as correct. When an individual surrenders a whole life policy, they may receive cash value; if this amount exceeds the total premiums paid, the difference is considered taxable income by the IRS. Therefore, it's essential for policyholders to be aware that surrendering the policy could lead to possible tax implications, making this statement accurate. The other options inaccurately depict the features of whole life insurance. Whole life policies do accumulate cash value over time, which negates the first statement. They do not inherently provide limited benefits, as they are designed to ensure a payout upon the policyholder's death, regardless of when that occurs, which counters the second statement. Lastly, while many whole life policies offer guarantees, most are not classified as non-cancellable in terms of the insurer's right to adjust premiums after a certain time period. Thus, only option D correctly reflects a true characteristic of whole life insurance.