Texas Life Agent Practice Exam

Tom Morris wishes to purchase a Whole Life policy and is considering payment plans. Which plan will accumulate cash value faster in the early years?

1. Straight Life

2. Limited Pay Life

3. 20-Pay Life

4. 10-Pay Life

The correct answer is: 20-Pay Life

The Limited Pay Life policy, particularly options like 20-Pay Life or 10-Pay Life, is designed to accumulate cash value more rapidly in the early years compared to a Straight Life policy. This is due to the shorter payment period over which the policyholder makes premium payments. In Limited Pay policies, the premiums are typically higher than those of a Straight Life policy, which has a premium payment period that lasts for the insured's lifetime. Because the premiums are paid over a limited number of years—whether it be 10, 20, or other specified terms—there is more capital being injected into the policy in a shorter time frame. This accelerated premium payment leads to faster cash value accumulation, making it an attractive option for individuals like Tom who are looking to build cash value quickly. The 20-Pay Life policy indeed provides a significant benefit in terms of cash value growth compared to options that require lifetime premiums or longer payment terms.