New York Child Abuse Identification and Reporting Practice Exam

Which type of life insurance policy typically accumulates cash value?

1. Term Life

2. Renewable Term

3. Whole Life

4. Accidental Death

The correct answer is: Whole Life

Whole life insurance is designed to accumulate cash value over time, which is a significant aspect that distinguishes it from other types of life insurance. This cash value grows at a guaranteed rate and can be accessed by the policyholder through loans or withdrawals, providing a living benefit. In contrast, term life policies, including renewable term options, only provide a death benefit and do not accumulate any cash value. They are designed to provide coverage for a specific period, and once that term ends, there is no residual value. Accidental death policies also do not accumulate cash value; they pay a benefit only in the event of the insured's death due to an accident. Whole life insurance thus offers both a death benefit and a savings component, making it an effective financial tool that can grow over time, which is why it is the correct choice in this question.