Tennessee Life Producer Practice Exam

Which type of life insurance typically accumulates cash value over time?

1. Term life insurance

2. Universal life insurance

3. Variable life insurance

4. Both B and C

The correct answer is: Both B and C

The correct answer is determined by understanding the characteristics of various life insurance products. Universal life insurance and variable life insurance are both forms of permanent life insurance that accumulate cash value over time. Universal life insurance is designed to offer flexibility in premium payments and death benefits, and it features a cash value component that grows based on interest rates set by the insurer, along with any additional premiums paid. The cash value can grow over time, providing policyholders with options for borrowing against this value or using it to pay premiums in the future. Variable life insurance also includes a cash value component, but unlike universal life, the cash value is invested in various market options, such as stocks or mutual funds. This means the cash value can fluctuate significantly based on market performance, potentially leading to greater accumulation than in universal life insurance. Term life insurance, on the other hand, does not accumulate cash value. It is designed solely for providing a death benefit during a specific term without any investment component. Given this context, both universal life and variable life insurance are recognized for their ability to accumulate cash value, making the correct choice inclusive of both options.