Which statement regarding the cash value of a whole life insurance policy is correct?

• A. The cash value increases over time and can be borrowed against by the policyholder.
• B. The cash value is paid out only if the policyholder surrenders the policy before maturity.
• C. The cash value remains constant throughout the life of the policy.
• D. The cash value is only available after the policyholder reaches age 65.

Answer: (A)

Verified step by step guidance

1. Understand the concept of 'cash value' in a whole life insurance policy. Cash value is the savings component of the policy that grows over time as premiums are paid and interest accumulates.
2. Recognize that the cash value increases over time due to the accumulation of interest and the portion of premiums allocated to the savings component.
3. Learn that the policyholder can borrow against the cash value, which means they can take a loan using the cash value as collateral. This is a key feature of whole life insurance policies.
4. Understand that the cash value is typically paid out only if the policyholder surrenders the policy before maturity. If the policyholder does not surrender the policy, the cash value is not directly paid out but contributes to the death benefit.
5. Clarify that the cash value does not remain constant throughout the life of the policy and is not restricted to availability after the policyholder reaches age 65. It grows over time and can be accessed earlier under specific conditions.