Oklahoma Life Producer Practice Exam

What is the key reason Whole Life Insurance is more expensive than Term Life Insurance?

1. It offers lower coverage

2. It builds cash value

3. It has lower premiums

4. It expires after a set term

The correct answer is: It builds cash value

Whole Life Insurance is more expensive than Term Life Insurance primarily because it builds cash value over time. Unlike Term Life Insurance, which provides coverage for a specified term and does not accumulate value, Whole Life Insurance offers a savings component that allows the policy owner to accumulate cash value that can be borrowed against or withdrawn. This cash value grows at a guaranteed rate and serves as an additional benefit of the policy beyond just the death benefit. The combination of the permanent nature of the coverage and the added value from the cash accumulation contributes to the higher premiums associated with Whole Life Insurance. In contrast, options mentioning lower coverage, lower premiums, or expiration after a set term do not accurately reflect the reasons for the cost differences. Whole Life does not offer lower coverage; in fact, it typically provides a more significant benefit over the lifetime of the policy. Additionally, Whole Life has higher premiums, not lower, and unlike Term Life, it does not expire after a set period, further highlighting the value and cost associated with it.