Tennessee Insurance Practice Exam

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What type of Whole Life policy accumulates cash value at a faster rate in the early years?

20-Pay Life
Straight Life
Limited Pay Life
Universal Life

The correct answer is: 20-Pay Life

A 20-Pay Life policy is designed to accumulate cash value more rapidly in the early years compared to other Whole Life insurance policies. This type of policy requires premiums to be paid for a limited period of 20 years, after which the policy is considered fully paid up. Because the premium-paying period is condensed into a shorter time frame, the insurer allocates a larger portion of those premiums toward the cash value accumulation in the initial years. In contrast, a Straight Life policy offers lifetime coverage with regular premium payments, leading to a slower accumulation of cash value as the policyholder pays premiums over an extended period. Limited Pay Life policies also accumulate cash value, but the accumulation rate may not be as aggressive as in a 20-Pay Life policy due to the structure of the premium payment schedule. Universal Life policies provide flexible premium payments and may accumulate cash value, but their growth can vary based on interest rates and the policyholder's payment decisions, leading to less predictability in the early accumulation phase.