West Virginia State Life Insurance Practice Exam

In which type of life insurance is cash value higher during early years compared to term insurance?

1. Term Life

2. Joint Life

3. Whole Life

4. Survivorship Life

The correct answer is: Whole Life

Whole life insurance is a type of permanent life insurance that not only provides a death benefit but also accumulates cash value over time. One of the defining characteristics of whole life policies is that they build cash value at typically higher rates during the initial years compared to term insurance, which does not have a cash value component at all. Term life insurance provides coverage for a specified term and pays a death benefit only if the insured passes away within that term, but it expires without any accumulated cash value once the policy ends. On the other hand, whole life insurance is designed to last a lifetime, and part of the premium payments contributes to a cash value account, which grows tax-deferred. This cash value can be accessed by the policyholder through policy loans or withdrawals, making it a leveraged financial asset that term insurance does not offer. In joint life and survivorship life policies, there may be complexities regarding how death benefits are paid based on the survival of one or both insured persons, but these types of insurance do not generally have cash value features akin to whole life policies. Therefore, whole life insurance stands out as the option where cash value increases significantly in the early years when compared to term options.