A Whole life Insurance policy accumulates cash value that becomes

• A. The policy loan value which the insured may borrow against
• B. Taxable income
• C. The amount of annual dividends
• D. Surrender value

Answer: (A)

In whole life, part of the premium builds cash value inside the policy. That cash value is available to the owner as a loan value—the amount you can borrow against the policy. The loan is secured by the policy itself, so you don’t pay income tax on the borrowed funds as long as the policy stays in force and the loan is repaid, though interest accrues. If you don’t repay, the outstanding loan plus interest reduces the death benefit and, if the policy is surrendered or lapses with debt, any unpaid loan can affect the payout. Surrender value is the amount you’d receive if you surrendered the policy today, which would be cash value minus any surrender charges and minus any outstanding loan. Dividends (if the policy is participating) are separate and not guaranteed, and aren’t the same as the cash value.