Final answer:
The insured individual most likely has a 4. universal life insurance policy, which offers a savings component and the ability to withdraw a portion of the policy's cash value, albeit often with fees and limits. Unlike term life or limited pay life insurance policies, a universal life policy allows for such withdrawals and has a flexible premium structure.
Step-by-step explanation:
When considering the type of life insurance policy that allows the owner to withdraw a portion of the policy's cash value, it is essential to understand the distinguishing features of various policies available on the market. The insured individual most likely has a universal life insurance policy. This type of insurance is known for its flexibility, including the ability to build cash value, which policyholders can access through withdrawals. However, these withdrawals may be limited and could incur a fee.
Unlike term life insurance, which offers no cash value and purely serves as a death benefit for a specified period, or limited pay life insurance, which involves paying premiums for a set amount of time until the policy is paid up, universal life insurance offers both a death benefit and a savings component.
An adjustable life insurance policy is also a type of policy that combines features of term and whole life insurance, with the potential for cash value accumulation. However, the flexibility and characteristics of a universal life policy regarding withdrawals suggest that it is the likely policy in question. It's important to understand that any cash value used to pay bills will reduce the value of the policy and potentially the death benefit.
Life insurance policies cover various needs, such as providing for a family upon the insured's death or, as with some whole life policies, as a financial tool during the policyholder's lifetime. Always consider the potential impacts, including fees and policy limits, when using life insurance as a financial resource.