Question

At age 30, Tom Morris wishes to purchase a whole life policy. His producer explains that he can pay for the policy and several ways. One method is called 20-pay life, and another, straight life. Tom wishes to know which plan will accumulate cash value at a faster rate in the early years of the policy. Which of the following would be the producers most appropriate response?

A. Straight life will accumulate cash value faster
B. 20-pay life will accumulate cash value faster
C. Both plans will accumulate cash value at the same rate
D. The rate of cash value accumulation depends o

Answer 1

Both the 20-pay life and straight life policies will accumulate cash value at a similar rate in the early years.

Step-by-step explanation:

In this scenario, the producer's most appropriate response would be option C: Both plans will accumulate cash value at the same rate. Whole life insurance policies have a cash value component that allows the policyholder to build up savings over time. The cash value accumulation is based on the premiums paid and the interest credited by the insurance company.

With both the 20-pay life and the straight life policies, the policyholder will be paying premiums for the same period of time, and the cash value will accumulate at a similar rate in the early years of the policy. The main difference between the two is the payment schedule, where the 20-pay life policy requires premiums to be paid for 20 years, while the straight life policy requires premiums to be paid throughout the entire life of the policyholder.

Therefore, both plans will build up cash value at a similar rate in the early years of the policy.