New Jersey Life Producer Practice Exam

What type of life insurance policy typically forms the backbone of traditional estate planning?

1. Universal Life

2. Term Life

3. Whole Life

4. Variable Life

The correct answer is: Whole Life

Whole life insurance is the type of policy that typically forms the backbone of traditional estate planning. This is because whole life policies provide both a death benefit and a savings component, often referred to as cash value. The cash value grows at a guaranteed rate over time and can be borrowed against or withdrawn, making it a versatile financial tool for individuals planning their estates. Moreover, whole life insurance policies remain in force for the insured's entire lifetime, as long as premiums are paid, providing a guaranteed death benefit that can help cover estate taxes, provide liquidity to the estate, or pass on wealth to heirs. Furthermore, the death benefit is generally not subject to income tax, which can be an important consideration in estate planning. This characteristic aligns with the goals of preserving wealth and providing for beneficiaries in a structured manner, making whole life insurance foundational to effective estate planning.