What does the accumulation of cash value in permanent life insurance signify?

What does the accumulation of cash value in permanent life insurance signify?

• A. The insurance policy is nearing expiration
• B. It is a feature that distinguishes it from term life insurance
• C. The insured has no risk of losing coverage
• D. It guarantees higher premiums

Answer: (B)

The accumulation of cash value in permanent life insurance signifies a key feature that distinguishes it from term life insurance. In permanent life insurance policies, such as whole life or universal life, a portion of the premiums paid goes towards building cash value over time, which can accumulate on a tax-deferred basis. This feature not only provides a savings component that can be accessed or borrowed against during the policyholder's lifetime, but also assures the policyholder that they have more than just a death benefit; they have an asset that can grow in value. Term life insurance, conversely, does not include this cash value component. It is designed purely to provide a death benefit for a specified term without any savings, investment, or cash accumulation aspect. Consequently, the presence of cash value is a fundamental characteristic that sets permanent life insurance apart from term policies, thereby making the correct answer the distinguishing feature of permanent life insurance.

The accumulation of cash value in permanent life insurance signifies a key feature that distinguishes it from term life insurance. In permanent life insurance policies, such as whole life or universal life, a portion of the premiums paid goes towards building cash value over time, which can accumulate on a tax-deferred basis. This feature not only provides a savings component that can be accessed or borrowed against during the policyholder's lifetime, but also assures the policyholder that they have more than just a death benefit; they have an asset that can grow in value.

Term life insurance, conversely, does not include this cash value component. It is designed purely to provide a death benefit for a specified term without any savings, investment, or cash accumulation aspect. Consequently, the presence of cash value is a fundamental characteristic that sets permanent life insurance apart from term policies, thereby making the correct answer the distinguishing feature of permanent life insurance.