AD Banker Comprehensive Practice Exam

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Enhance your exam readiness with the AD Banker Comprehensive Exam guide. Includes flashcards and multiple-choice questions with explanations.

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The cash value component in permanent life insurance policies typically:

Decreases over time
Is only accessible after the policyholder's death
Increases as premiums are paid and can be borrowed against
Is exempt from all taxes

The correct answer is: Increases as premiums are paid and can be borrowed against

The cash value component in permanent life insurance policies is designed to accumulate over time as policyholders make premium payments. This accumulation occurs because a portion of the premium is allocated to the cash value account, which grows tax-deferred. The growth rate may be influenced by the type of policy—such as whole life or universal life—but the fundamental characteristic remains that the cash value typically increases with continued premium payments. Additionally, policyholders have the option to borrow against this cash value, which can provide them with financial flexibility. While borrowed amounts are subtracted from the death benefit, this feature allows access to funds while keeping the insurance coverage intact. Therefore, understanding the nature of cash value in permanent life insurance is essential, as it offers not just a safety net for beneficiaries but also a financial resource throughout the policyholder's lifetime.