Oklahoma Life Producer Practice Exam

What typically characterizes a single premium life insurance policy?

1. Multiple payments over time

2. Immediate cash value

3. Coverage only for a limited term

4. Flexible premiums

The correct answer is: Immediate cash value

A single premium life insurance policy is primarily characterized by the payment of a one-time, upfront premium that provides coverage for the life of the insured. This type of policy often establishes immediate cash value, which means that once the premium is paid, a portion of it is allocated toward the cash value of the policy right away. This cash value can grow over time, and policyholders may access it through loans or withdrawals, making it a valuable feature for those who want to have immediate liquidity against their policy. The immediate cash value contrasts with policies requiring multiple payments over time, which would not typically offer any cash value until a certain period has passed. Additionally, single premium policies differ from term insurance, which provides coverage for a limited time rather than for the insured's entire life. Lastly, they do not allow flexible premiums; once the single premium is paid, no further payments are necessary, and the policy remains in force as long as required conditions are met.