Tennessee Insurance Practice Exam

Which policy accumulates cash value at a slower rate compared to a 20-Pay Life policy?

1. Straight Life

2. Variable Life

3. Term Life

4. Limited Pay Life

The correct answer is: Straight Life

A Straight Life policy accumulates cash value at a slower rate compared to a 20-Pay Life policy because it is designed to provide lifelong coverage with premiums paid over the insured's life rather than a set number of years. The cash value grows over time, but since premiums are paid longer, the initial years see slower accumulation when compared to policies like a 20-Pay Life, where the cash value accumulates more rapidly after the premium payment period is completed. In a 20-Pay Life policy, the insured pays premiums for only 20 years, leading to a quicker accumulation of cash value within that timeframe. The accelerated premium payments during the shorter payment period result in a more substantial cash value growth compared to the long-term, consistent contributions seen in a Straight Life policy. Variable Life policies also pose a different scenario as they have potential for cash value growth tied directly to market investments, which can sometimes yield quicker growth in cash value compared to the predictable slow accumulation of Straight Life policies. Term Life policies do not accumulate cash value at all, making them quite distinct from Whole Life products, including both 20-Pay Life and Straight Life policies. Therefore, the slow accumulation of cash value characteristic of Straight Life policies makes it the correct