Which of the following types of policies does NOT accumulate cash value?

Which of the following types of policies does NOT accumulate cash value?

• A. Term
• B. Endowment
• C. Straight Life
• D. Variable Life

Answer: (A)

The type of policy that does not accumulate cash value is a term policy. Term insurance is designed to provide coverage for a specific period or term, such as 10, 20, or 30 years, and pays a death benefit only if the insured passes away within that period. Because term policies are typically intended as pure life insurance without an investment component, they do not build cash value over time. In contrast, endowment policies, straight life policies, and variable life policies are types of permanent insurance that do accumulate cash value. Endowment policies provide a death benefit if the insured dies during the policy term or pays out a benefit if the insured survives until the end of the term, while also accumulating cash value. Straight life policies (or whole life policies) accumulate cash value that can be accessed by the policyholder. Variable life policies also build cash value, which can fluctuate based on the performance of investment options chosen by the policyholder. Therefore, the distinction of not accumulating cash value applies solely to term insurance.

The type of policy that does not accumulate cash value is a term policy. Term insurance is designed to provide coverage for a specific period or term, such as 10, 20, or 30 years, and pays a death benefit only if the insured passes away within that period. Because term policies are typically intended as pure life insurance without an investment component, they do not build cash value over time.

In contrast, endowment policies, straight life policies, and variable life policies are types of permanent insurance that do accumulate cash value. Endowment policies provide a death benefit if the insured dies during the policy term or pays out a benefit if the insured survives until the end of the term, while also accumulating cash value. Straight life policies (or whole life policies) accumulate cash value that can be accessed by the policyholder. Variable life policies also build cash value, which can fluctuate based on the performance of investment options chosen by the policyholder. Therefore, the distinction of not accumulating cash value applies solely to term insurance.