Minnesota Life Insurance License Practice Exam

What type of life insurance policy typically has a cash value component?

1. Term life insurance

2. Whole life insurance

3. Accidental death insurance

4. Group life insurance

The correct answer is: Whole life insurance

Whole life insurance is the type of policy that typically includes a cash value component. This cash value accumulates over time as part of the premiums paid, and it grows on a tax-deferred basis. Policyholders have the option to borrow against this cash value or withdraw it, making whole life insurance not only a death benefit protection but also a potential financial resource while the policy is in force. In contrast, term life insurance provides only a death benefit for a specified period without any cash value accumulation. Accidental death insurance is a type of policy that only pays out in the event of death due to an accident, without a cash value feature. Group life insurance usually provides term coverage for members of a group, such as employees of a company, and generally does not include cash value components either. Therefore, whole life insurance is distinct in its ability to build cash value, making it a popular choice for individuals looking for both insurance coverage and a savings component.