AD Banker Comprehensive Practice Exam

In many jurisdictions, permanent policies are required to have some cash value by the end of:

1. The fourth year

2. The first year

3. The second year

4. The third year

The correct answer is: The third year

Permanent life insurance policies, such as whole life and universal life insurance, typically accumulate cash value over time. In many jurisdictions, regulations mandate that these policies must have a minimum cash value by the end of the third policy year. This requirement serves to protect policyholders, ensuring that they have a tangible asset that grows in value as a part of their insurance policy. This cash value can be accessed by the policyholder through loans or withdrawals, providing financial flexibility. The importance of this timeline is rooted in balancing the insurance company's need to manage risk while also providing a benefit to the policyholder. By the third year, the insurer has had enough time to develop the policy's cash value, reflecting the contributions made and the investment growth associated with those contributions. This regulatory standard helps ensure that both new and existing policyholders can plan for their financial future with some assurance of cash value accumulation.