Which type of life insurance provides a cash value component?

The correct answer indicates that both whole life insurance and universal life insurance policies provide a cash value component. This feature is a significant characteristic of these types of life insurance as it allows policyholders to accumulate savings over time in addition to providing a death benefit.

Whole life insurance is designed to last for the entirety of the policyholder’s life, as long as premiums are paid. It includes a cash value component that grows at a guaranteed rate, allowing the policyholder to take loans against this cash value or withdraw funds, though doing so may reduce the death benefit.

Universal life insurance also features a cash value component, but with more flexibility compared to whole life insurance. Policyholders can adjust their premium payments and death benefit amounts. The cash value in universal life insurance grows based on a credited interest rate, which can vary, providing the potential for higher returns depending on the performance of underlying investments.

Thus, identifying both whole and universal life insurance as providing the cash value component recognizes their dual role not only as life insurance products but also as financial instruments that can serve long-term savings goals.