Primerica Life Producer Practice Test

Which type of life insurance policy generates immediate cash value?

1. Whole life

2. Term life

3. Universal life

4. Single premium

The correct answer is: Single premium

Single premium life insurance policies are designed to generate immediate cash value because the policyholder makes a one-time lump-sum payment at the outset. This initial premium is invested, and the cash value accumulates right away, providing immediate access to funds if needed. In contrast, whole life insurance also builds cash value but does so gradually over time, as it typically requires regular premium payments over the life of the policy to accumulate cash value. Term life insurance, on the other hand, does not build cash value at all; it provides coverage only for a specified term and pays out only if the insured passes away during that time. Universal life insurance offers flexible premiums and the potential to accumulate cash value, but like whole life, it does not provide immediate cash value since it is tied to ongoing contributions. Therefore, the characteristics of single premium policies make them unique in providing immediate cash value upon issuance.