Minnesota Life Insurance License Practice Exam

Which life insurance option allows for cash withdrawals during the policyholder's lifetime?

1. Term life insurance

2. Whole life insurance

3. Universal life insurance

4. Joint life insurance

The correct answer is: Universal life insurance

Universal life insurance is designed with flexibility, providing not only a death benefit but also a cash value component that accumulates over time. This type of policy allows policyholders to make withdrawals from the cash value during their lifetime, which can be particularly advantageous if they encounter financial needs or opportunities that require immediate access to funds. The nature of universal life insurance includes the ability to adjust premium payments and the death benefit, which adds to its versatility. The cash value grows based on interest rates set by the insurer and can be accessed through withdrawals or loans, enabling policyholders to leverage their insurance policy as a financial asset while they are still living. In contrast, term life insurance strictly provides coverage for a specified period and does not accumulate cash value, making it unsuitable for withdrawals. Whole life insurance also builds cash value, but the rules regarding access may be more rigid compared to universal life policies. Joint life insurance covers two lives and typically does not focus on cash value, as its primary purpose is providing a death benefit upon the death of either insured party. Thus, universal life insurance stands out as the option that allows cash withdrawals during the policyholder's lifetime.