Washington Life Producer Practice Exam

What type of policy is defined by a cash value accumulation alongside a growing face amount?

1. Whole Life policy

2. Term Life policy

3. Universal Life policy

4. Variable Life policy

The correct answer is: Universal Life policy

A universal life policy is characterized by its flexibility in premium payments, death benefit amounts, and the accumulation of cash value. This type of policy allows policyholders to adjust their premiums and the death benefit over time. The cash value grows at an interest rate determined by the insurer, which can potentially outperform inflation. Importantly, this policy type is designed so that the cash value accumulation is linked to the face amount of the policy, meaning that as the cash value increases, the overall value of the policy can also grow. In contrast, whole life policies tend to have a fixed death benefit and premium payments, and their cash value growth is also predictable but generally does not adjust in response to policyholder choices. Term life policies do not accumulate cash value at all; they only provide coverage for a specific term, typically without any investment component. Variable life policies do allow for cash value accumulation linked to investment options chosen by the policyholder, but they do not offer the same level of flexibility in death benefit and premium adjustments as universal life policies. Thus, the unique attributes of the universal life policy make it the answer that best fits the description provided in the question.