Which of the following is guaranteed in a traditional whole life policy?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Traditional whole life promises three guarantees: a level premium payable for life, a guaranteed minimum cash value that accumulates over time, and a guaranteed death benefit equal to the face amount, subject to policy terms and any outstanding loans. These guarantees make whole life a permanent, savings-oriented product in which the insurer bears the investment risk because the values are contractually fixed. The premium is calculated to remain level throughout the insured's lifetime, and the cash value grows at a guaranteed rate. Because of these guarantees, whole life is often described as the most conservative permanent policy, in contrast to variable and universal products where values can fluctuate.
Why the other options are wrong
- A variable rate of return is the hallmark of variable life and variable universal life products, which invest in separate accounts and pass investment risk to the policyowner; traditional whole life credits a guaranteed rate.
- The whole life premium is level for life and never decreases; decreasing premiums are not a feature of any whole life product.
- The cash value of a whole life policy starts near zero and builds gradually over time; it equals the face amount only at maturity, typically at age 100.
Memory hook
Whole life = three guarantees: level premium, cash value, death benefit. Everything is locked in.