Tennessee Insurance Practice Exam

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What type of life insurance accumulates cash value over time?

Term life insurance
Whole life insurance
Accidental death insurance
Endowment policies

The correct answer is: Whole life insurance

Whole life insurance is a type of life insurance that not only provides a death benefit to beneficiaries but also accumulates cash value over time. This cash value grows at a guaranteed rate set by the insurer and can be borrowed against or withdrawn by the policyholder. This aspect distinguishes whole life insurance from term life insurance, which only offers coverage for a specific period without any cash value accumulation. In addition, while accidental death insurance provides a payout primarily in the event of death due to accidents, it does not have a cash value component. Endowment policies do accumulate cash value, but they typically serve a different purpose, focusing on paying out a benefit after a specific period or upon death, which can occasionally be confused with whole life insurance in terms of structure. Overall, the defining feature of whole life insurance is its dual ability to offer a death benefit and to build cash value over the life of the policy.