AD Banker Comprehensive Practice Exam

What is a key feature of a whole life insurance policy?

1. It has a decreasing death benefit

2. It provides coverage for a specified term

3. It builds cash value over time

4. It cannot be borrowed against

The correct answer is: It builds cash value over time

A whole life insurance policy is designed to provide lifelong coverage, and one of its fundamental features is that it builds cash value over time. This cash value component is a critical aspect because it differentiates whole life insurance from term policies, which do not accumulate any cash value. As premiums are paid into a whole life policy, a portion of those premiums goes toward building this cash value, which grows at a guaranteed rate set by the insurance company. Policyholders can access this cash value through loans or withdrawals, although any unpaid loans will reduce the death benefit. The other options highlight characteristics that do not align with the key aspects of whole life insurance. For instance, a decreasing death benefit pertains more typically to certain types of term life insurance policies, which provide coverage for a limited time and may reduce the death benefit as the policy nears its end. A specified term is inherently the nature of term insurance, which provides coverage only for a predetermined period without any cash accumulation. Additionally, the notion that a whole life policy cannot be borrowed against is incorrect, as it is one of the primary benefits of having cash value in such a policy. In summary, the ability to build cash value over time is not only a key feature but also a significant advantage