PSI Life Exam Practice Test

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What distinguishes a limited payment whole life policy from a traditional whole life policy?

Shorter duration of payments
Higher death benefits
Flexible premium payments
No cash value accumulation

The correct answer is: Shorter duration of payments

A limited payment whole life policy is characterized by a shorter duration of premium payments compared to a traditional whole life policy. In a traditional whole life policy, the policyholder typically pays premiums for their entire lifetime, which can span several decades. Conversely, in a limited payment whole life policy, the policyholder pays premiums for a predetermined, shorter period, such as 10, 20, or 30 years, after which the policy becomes fully paid up. This distinction is significant as it allows the insured to accumulate cash value and secure a death benefit without having to make premium payments indefinitely. By completing payments in a shorter timeframe, policyholders can enjoy the benefits of a whole life policy—such as cash value accumulation and guaranteed death benefits—while minimizing the duration of their financial commitment. Other options may relate to features of different policy types, but they do not specifically define the distinction of limited payment arrangements within the realm of whole life insurance.