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FRM Part I · FRM Exam Part I · Insurance Companies and Pension Plans

An insurer writes a policy that pays a fixed death benefit and carries a level premium for the insured's whole life, with a cash value that builds up over time and can be borrowed against. Which type of policy is this?

This is whole life insurance. It covers the insured for life, charges level premiums, pays a fixed death benefit and builds a cash value that can be borrowed against. Term insurance lacks the cash value and lifelong coverage, and annuities pay income rather than death benefits.

  1. ATerm life insurance
  2. BWhole life insuranceCorrect
  3. CGroup life insurance
  4. DAnnuity contract

Explanation

Whole life insurance provides coverage for the insured's entire life with level premiums and a cash value component. Term insurance covers a fixed period and has no cash value. Group life covers members of a group, and an annuity pays income rather than a death benefit.

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