Cash Value

A client wanting lifelong coverage that also builds cash value should consider:

1. A.A pure disability policyA disability policy pays income while the insured is alive and unable to work. It carries no death benefit and no accumulation feature, so it satisfies neither half of the request.
2. B.AD&D onlyThis pays only when death arises from a covered accident, so the great majority of deaths produce nothing, and it accumulates no cash value. It is narrow supplemental coverage rather than lifelong protection.
3. C.Whole life insuranceCorrect - permanent with cash value.
4. D.Annually renewable termThis is genuinely life insurance and can be renewed for many years, which is the tempting part. But the premium climbs at each renewal, the coverage eventually ends, and no cash value ever accumulates.

Why: Whole life provides permanent coverage with guaranteed cash value growth.

In a variable life policy, the cash value is invested:

1. A.Nowhere - there is no cash valueVariable life is a permanent product and does accumulate cash value. What varies is how that value performs, not whether it exists.
2. B.Only in the insurer's general account at a fixed rateThis describes traditional whole life. Variable life holds cash value in separate-account sub-accounts, which is precisely why the owner carries the investment risk and the return is not guaranteed.
3. C.In the owner's checking accountCash value remains inside the policy in the insurer's custody. Money moved into a personal bank account would be a withdrawal, which ends its role within the contract.
4. D.In sub-accounts chosen by the policyownerCorrect - owner-directed sub-accounts.

Why: The policyowner selects among sub-accounts, so cash value performance depends on those investments.

Someone wanting permanent protection plus cash value to borrow against should consider:

1. A.Accidental death coverage onlyThe trigger here is narrow, reaching only accidental death, and nothing accumulates behind it. A client who dies of illness leaves nothing, and there is no fund available to borrow against.
2. B.Level term onlyLevel term holds the premium steady, which can make it feel permanent. But the coverage still expires at the end of the period and no reserve ever builds up to borrow from.
3. C.Whole life or universal lifeCorrect - permanent, cash-value policies.
4. D.A pure disability policyThis addresses lost income during life rather than protection at death. It covers a different risk altogether and creates no borrowable value.

Why: Whole life or universal life provide lifelong coverage and accessible cash value.

Universal life insurance generally allows:

1. A.Changing the insuredUniversal life is flexible about premiums and death benefit, which is what makes this tempting. That flexibility never reaches the insured, though; the mortality risk was underwritten on one life and stays there.
2. B.Partial withdrawals from cash value (which may reduce the benefit)Correct - UL allows withdrawals.
3. C.Tax-free unlimited withdrawalsWithdrawals are permitted, but not on these terms. Amounts above the owner's basis become taxable, and taking money out reduces the death benefit, so neither unlimited nor uniformly tax-free holds up.
4. D.No access to cash value everThis describes term insurance. Access to accumulated value is one of the defining features of universal life.

Why: Universal life typically permits partial withdrawals from cash value, which may reduce the death benefit.