PSI Life Exam Practice Test

Which of the following accurately describes the benefit of having a cash value in a life insurance policy?

1. It reduces the premium payments required

2. It can be borrowed against or withdrawn

3. It is given back as a refund upon cancellation

4. It determines the death benefit amount

The correct answer is: It can be borrowed against or withdrawn

The benefit of having a cash value in a life insurance policy is that it can be borrowed against or withdrawn. Cash value accumulation is a unique feature of permanent life insurance policies, such as whole life and universal life. Over time, as premiums are paid, a portion of those payments contributes to the cash value, allowing policyholders to access funds for various needs, such as emergencies, education, or unexpected expenses. This feature provides flexibility for the policyholder, granting them the opportunity to take loans against the cash value or make withdrawals. It is important to note that borrowing against the cash value can impact the death benefit and may incur interest, which is a key consideration for policyholders when deciding to utilize this option. The ability to access cash value adds an additional layer of financial security and utility to permanent life insurance policies.