Texas Life Agent Practice Exam

Which of the following is NOT correct regarding Ordinary Whole Life policies?

1. The cash value grows more slowly in the beginning years of the policy.

2. The cash value grows more quickly in the beginning years of the policy.

3. The death benefit is guaranteed as long as premiums are paid.

4. Premiums remain the same throughout the life of the policy.

The correct answer is: The cash value grows more slowly in the beginning years of the policy.

The selection indicating that the cash value grows more slowly in the beginning years of the policy accurately reflects the nature of Ordinary Whole Life policies. Ordinary Whole Life insurance features a structured growth pattern for cash value, which is designed to accumulate over time. In the initial years of such policies, the cash value increases at a slower pace. This is primarily because a significant portion of early premium payments is allocated to administrative costs and insurance coverage rather than the cash value component. As the policy matures, the cash value begins to grow more rapidly due to the accumulation of interest and the gradual reduction of the costs associated with the policy. In contrast, options that state the cash value grows more quickly in the beginning years are inaccurate because they overlook this characteristic of whole life policies. The guaranteed death benefit and level premiums throughout the life of the policy are true aspects of Ordinary Whole Life, reinforcing the reliability and stability that policyholders can expect from such insurance contracts.