Colorado Life Producer License Practice Test

Which policy is known for its potential for cash value withdrawals?

1. Term life insurance

2. Straight life insurance

3. Universal life insurance

4. Whole life insurance

The correct answer is: Universal life insurance

The correct response highlights universal life insurance as the policy known for its potential for cash value withdrawals. This type of insurance combines life coverage with a savings component, meaning that part of the premium payments goes into a cash value account, which grows over time. Policyholders can take loans against or make withdrawals from this cash value, providing them with flexibility to access funds for various needs, such as emergencies or life milestones. While whole life insurance also allows for cash value accumulation, universal life insurance offers more flexibility in terms of premium payments and death benefit adjustments, making cash withdrawals more accessible. Term life insurance, on the other hand, does not build any cash value since it is designed purely for providing death benefits for a specified term. Straight life insurance typically refers to whole life. Thus, the option that best represents a policy known for cash value withdrawals is universal life insurance.