Which of the following is NOT a characteristic of cash-value (or whole-life) life insurance policies?
A Contains a savings component
B No renewal needed
C Policy coverage remains the same for the life of the policy
D All of the above are characteristics of cash-value life insurance policies
The correct answer and explanation is:
The correct answer is B) No renewal needed.
Cash-value (or whole-life) life insurance policies have several defining characteristics, but “no renewal needed” is not one of them. Let’s break down the options to explain why.
A) Contains a savings component:
This is a key feature of cash-value life insurance. Unlike term life insurance, which only provides a death benefit, cash-value life insurance also includes an investment or savings element. Part of the premiums paid go toward building a cash value, which grows over time. The policyholder can borrow against this cash value or even surrender the policy for its accumulated value.
B) No renewal needed:
This option is incorrect because, unlike term life insurance, which typically requires renewal after a certain period, whole life insurance policies do not need to be renewed in the traditional sense. They are designed to last for the insured’s lifetime, as long as premiums are paid. The “no renewal” concept applies more to term life insurance, which is set for a specific duration (e.g., 10, 20, or 30 years), after which the policyholder would need to renew or purchase a new policy. In contrast, whole life policies remain in force for the entire life of the insured, provided premiums are maintained.
C) Policy coverage remains the same for the life of the policy:
This is another key characteristic of cash-value or whole-life insurance. The death benefit in a whole-life policy generally remains fixed throughout the life of the policyholder. There is no need to worry about increasing premiums or adjusting coverage as the policy matures.
In conclusion, while whole-life insurance has a savings component and provides lifelong coverage, it does require consistent premium payments, unlike term life insurance that might need renewal after a set period. Therefore, option B is the correct answer as it does not align with the features of cash-value life insurance.