South Carolina Life and Health Practice Exam

What type of insurance policy typically accumulates cash value?

1. Term life insurance

2. Whole life insurance

3. Health insurance

4. Travel insurance

The correct answer is: Whole life insurance

Whole life insurance is a type of insurance policy that typically accumulates cash value over time. This kind of policy provides lifelong coverage and includes a savings component that grows at a guaranteed rate. The cash value accumulates on a tax-deferred basis, meaning the policyholder does not pay taxes on the gains until they are withdrawn. As the policyholder makes premium payments, a portion of those premiums goes towards building the cash value. This cash value can be borrowed against or partially surrendered in case the policyholder needs access to funds, which adds a level of flexibility to the policy. In contrast, term life insurance provides coverage for a specific period and does not have a cash value component. Health insurance is designed to cover medical expenses, and travel insurance provides coverage for risks associated with traveling, neither of which accumulate cash value.