PSI Life Exam Practice Test

In an insurance context, what does premium accumulation imply?

1. Delay in premium payments

2. Interest is being earned on the dividends

3. No cash value is generated

4. Immediate benefits upon death

The correct answer is: Interest is being earned on the dividends

Premium accumulation in the context of insurance often refers to the growth of the policy's value over time through interest earned on dividends or additional funds, particularly in policies that involve a savings or investment component. When a policyholder chooses to accumulate their dividends instead of taking them in cash, those dividends are typically credited with interest. This process enhances the total value of the policy, which can be beneficial when it comes to cash value accumulation or potential cash out options later on. The other options present concepts that do not directly relate to the essence of premium accumulation. Delays in premium payments would not enhance policy value; rather, they could jeopardize the coverage. No cash value generation contradicts the idea of accumulation, which inherently implies that value is being built over time. Immediate death benefits pertain to the face amount payable upon death but do not play a role in the accumulation of value within the policy during the insured's lifetime. Thus, the focus on the interest earned on dividends clearly aligns with the principles of premium accumulation.