What is true about the cash value of a whole life policy?

What is true about the cash value of a whole life policy?

• A. It fluctuates with market conditions
• B. It can be withdrawn tax-free
• C. It accumulates interest at a guaranteed rate
• D. It is not accessible until maturity

Answer: (C)

The cash value of a whole life policy is designed to provide a secure and reliable savings component within the insurance contract. One of the key features of whole life insurance is that it accumulates cash value over time at a guaranteed interest rate set by the insurance company. This means that the policyholder can expect their cash value to grow steadily according to the terms of the policy, irrespective of market fluctuations. In contrast, options suggesting that cash value might fluctuate with market conditions or is not accessible until maturity do not reflect the nature of whole life policies. Additionally, while withdrawals from cash value may be structured in a way that can allow for tax advantages, they are not universally tax-free. The guarantee on growth adds a layer of predictability for policyholders, making it one of the attractive elements of whole life insurance.

The cash value of a whole life policy is designed to provide a secure and reliable savings component within the insurance contract. One of the key features of whole life insurance is that it accumulates cash value over time at a guaranteed interest rate set by the insurance company. This means that the policyholder can expect their cash value to grow steadily according to the terms of the policy, irrespective of market fluctuations.

In contrast, options suggesting that cash value might fluctuate with market conditions or is not accessible until maturity do not reflect the nature of whole life policies. Additionally, while withdrawals from cash value may be structured in a way that can allow for tax advantages, they are not universally tax-free. The guarantee on growth adds a layer of predictability for policyholders, making it one of the attractive elements of whole life insurance.