Maryland Life and Health Insurance License Practice Exam

What option allows policyholders to accumulate cash value in a life insurance policy?

1. Term life insurance

2. Whole life insurance

3. Accidental death benefit

4. Universal life insurance

The correct answer is: Whole life insurance

Whole life insurance is designed to provide lifelong coverage while also accumulating cash value over time. This cash value component is a significant feature that distinguishes whole life insurance from term life insurance, which purely offers death benefits without any cash accumulation. With whole life insurance, a portion of the premiums paid contributes to the cash value, which grows at a guaranteed rate set by the insurance company. Policyholders can access this cash value through loans or withdrawals during their lifetime, providing them with a financial resource they can utilize while still maintaining their life insurance coverage. Universal life insurance offers flexibility in premium payments and also includes a cash value component, but it differs from whole life insurance in terms of how premiums are allocated and the potential for cash value growth. While both whole life and universal life policies allow cash value accumulation, the question specifically identifies whole life insurance as the primary option associated with this feature. Term life insurance, on the other hand, does not accumulate cash value; it is focused solely on providing a death benefit during the policy term. The accidental death benefit feature does not pertain to cash accumulation within a life insurance policy, as it typically offers an additional payout if the insured dies due to an accident, without any savings component.