What is the purpose of an accumulation account in permanent life insurance policies?

What is the purpose of an accumulation account in permanent life insurance policies?

• A. To store premium refunds
• B. To accumulate excess premium payments as cash value
• C. To cover administrative costs of the insurer
• D. To pay dividends to policyholders

Answer: (B)

The purpose of an accumulation account in permanent life insurance policies is to accumulate excess premium payments as cash value. This cash value grows over time and can be accessed by the policyholder through loans or withdrawals, providing a savings component in addition to the life insurance coverage. Permanent life insurance policies typically combine a death benefit with an investment element, and the accumulation account allows policyholders to build wealth within the policy itself. This growth often can be tax-deferred, making it a valuable feature for long-term financial planning and security. Other options do not accurately describe the function of the accumulation account. For example, while administrative costs are an essential aspect of a life insurance policy, they are not directly covered by the accumulation account. Similarly, premium refunds and dividends may be components of a policy, but they do not pertain to the primary role of an accumulation account, which is specifically to manage the cash value resulting from excess premiums. Thus, the correct answer highlights the essential savings feature of permanent life insurance.

The purpose of an accumulation account in permanent life insurance policies is to accumulate excess premium payments as cash value. This cash value grows over time and can be accessed by the policyholder through loans or withdrawals, providing a savings component in addition to the life insurance coverage. Permanent life insurance policies typically combine a death benefit with an investment element, and the accumulation account allows policyholders to build wealth within the policy itself. This growth often can be tax-deferred, making it a valuable feature for long-term financial planning and security.

Other options do not accurately describe the function of the accumulation account. For example, while administrative costs are an essential aspect of a life insurance policy, they are not directly covered by the accumulation account. Similarly, premium refunds and dividends may be components of a policy, but they do not pertain to the primary role of an accumulation account, which is specifically to manage the cash value resulting from excess premiums. Thus, the correct answer highlights the essential savings feature of permanent life insurance.