In level premium permanent life insurance, the reserve is designed to eventually equal the policy's face amount. True or false?

• A. True
• B. False; the reserve will exceed the face amount
• C. False; the reserve will never equal the face amount
• D. False; there is no reserve

Answer: (A)

In level premium permanent life insurance, part of each fixed premium covers current mortality costs, and the remainder is set aside as a reserve that builds as the policy ages. This reserve, or cash value, earns interest and grows over time. Because the premium is level and the cash value accumulates, the reserve is designed to eventually reach the policy’s face amount. When the cash value equals the face amount, the policy is effectively paid up and funded to continue paying the death benefit without needing further premiums. That’s why the statement is true.

The other options don’t fit because the typical design is for the cash value to grow toward the face amount (not exceed it as a general rule), to never equal it (which would leave the policy underfunded), or to have no reserve at all (which contradicts the whole idea of a level premium permanent policy’s cash value).