Future Business Leaders of America (FBLA) Business Calculations Practice Test

Which insurance type typically requires higher initial costs but may also accumulate cash value over time?

1. Term insurance

2. Universal life insurance

3. Liability insurance

4. Renter's insurance

The correct answer is: Universal life insurance

The type of insurance that typically requires higher initial costs but may also accumulate cash value over time is universal life insurance. Universal life insurance is designed to provide both a death benefit and a cash value component, which grows over time based on interest rates set by the insurance company. This cash value is accessible to the policyholder and can be borrowed against or withdrawn, adding a layer of financial flexibility. The higher initial costs can be attributed to the dual benefits of life coverage and cash value accumulation, as well as the flexibility it offers in premium payment amounts and death benefit configurations. In contrast, term insurance provides only a death benefit for a specified period without any cash value accumulation, making it generally more affordable than permanent insurance types like universal life. Liability insurance is focused solely on providing protection against claims resulting from injuries and damages to other people, and it does not accumulate cash value, while renter's insurance protects personal property without any cash value component.