AD Banker Comprehensive Practice Exam

In a whole life insurance policy, what is true about the insurance protection and cash value?

1. The cash value is equal to the face amount of insurance throughout the life of the policy

2. The cash value is greatest at the end of the policy period, and the insurance protection is greatest at the start of the policy

3. The cash value provides no living benefits until the policy endows

4. The insurance protection remains level throughout the policy period, and the cash value does not impact the amount of insurance protection at all

The correct answer is: The cash value is equal to the face amount of insurance throughout the life of the policy

In a whole life insurance policy, the value of the insurance protection and cash value can be understood best in relation to their respective roles. The correct answer reflects the fundamental characteristics of a whole life policy, wherein the cash value does not equal the face amount of the insurance throughout the life of the policy but rather grows steadily over time. The cash value accumulates gradually from the policy’s inception, allowing the policyholder to access a portion of it as a savings component; however, it never equals the death benefit (face amount) until the policy is surrendered or matures at the end of a specified term. Throughout most of the life of the policy, the death benefit remains constant, while the cash value increases. It is important to note that once the policy matures, the cash value can potentially equal the face amount, but that is only at the end of the policy period, not throughout the life of the policy. The accumulation of cash value represents the savings element that allows the policyholder to borrow against it or terminate the policy for its cash value. Understanding these features of whole life insurance is crucial for grasping how it functions over the long term, making it clear why the selected option reflects an incorrect interpretation of the relationship between cash value and