New York Child Abuse Identification and Reporting Practice Exam

Which statement is true regarding a limited pay whole life policy?

1. It requires premiums for the entire life of the insured

2. Coverage ends when premiums are fully paid

3. Coverage continues after the policy is paid-up

4. It provides no cash value options

The correct answer is: Coverage continues after the policy is paid-up

A limited pay whole life policy is designed to provide coverage for the entire life of the insured while limiting the number of years that premiums are paid. The key feature of this type of policy is that, although premiums are paid for a specified number of years, once those premiums are fully paid, the policy does not lapse and coverage continues for the insured's entire lifetime. This is why the statement regarding coverage continuing after the policy is paid-up is accurate. After the specified premium payments are completed, the policy remains in force, ensuring that the insured remains covered until death, and the beneficiary will receive the death benefit. In contrast, the other statements do not accurately describe the characteristics of a limited pay whole life policy. For instance, it does not require premiums for the entire life of the insured; instead, it allows for a limited payment period. Coverage does not end when premiums are fully paid, as the policy remains active. Lastly, limited pay whole life policies typically do accumulate cash value, so the idea that they provide no cash value options is also incorrect.