Washington Life Producer Practice Exam

What is a key characteristic of a whole life insurance policy?

1. Flexible premium payments

2. Guaranteed cash value accumulation

3. Limited death benefit

4. Adjustable coverage amount

The correct answer is: Guaranteed cash value accumulation

A key characteristic of a whole life insurance policy is its guaranteed cash value accumulation. Whole life insurance is designed to provide a death benefit to the policyholder’s beneficiaries upon their death, but it also features a savings component that builds cash value over time. This cash value grows at a guaranteed rate and is tax-deferred, meaning that the policyholder does not have to pay taxes on the growth until they withdraw the funds. This aspect of guaranteed cash value is one of the significant benefits of whole life insurance, as it not only protects the policyholder's loved ones but also serves as a financial asset that can be borrowed against or withdrawn in times of need. The concept of cash value differentiates whole life insurance from term life insurance, which has no such accumulation feature. In contrast, other options do not accurately reflect characteristics of whole life insurance. For example, flexible premium payments and adjustable coverage amounts are typically associated with universal life insurance policies, which allow for more variability in payment and coverage levels. Limited death benefits are not representative of whole life policies, which provide a level death benefit that is predetermined and not limited.