Question 17

Ordinary life insurance accumulates a reserve that eventually equals the face amount of the policy.

This accumulation of reserve is a defining feature of ordinary life insurance. Over time, the cash value built within the policy grows and can eventually match the face amount.

A) equals the face amount of the policy

This option is correct because, in ordinary life insurance, the reserve value accumulates over time through premiums and interest, ultimately equaling the face amount of the policy at maturity or upon the policyholder's death.

B) results in a dividend payment to the policyowner

This option is incorrect as ordinary life insurance does not inherently guarantee dividend payments. Dividends may be associated with participating policies, but they are not a standard feature of all ordinary life insurance policies.

C) ceases to earn interest or grow in a positive earnings direction

This option is incorrect because the cash value in an ordinary life insurance policy continues to earn interest and grow until the policy matures or is surrendered, contrary to the assertion made in this choice.

D) requires mandatory cash value distributions

This option is incorrect as there is no requirement for mandatory cash value distributions in ordinary life insurance. Policyholders have the option to access their cash value but are not mandated to take distributions.

Conclusion

The correct answer is option A, as it accurately reflects the nature of ordinary life insurance in accumulating a reserve that equals the policy's face amount over time. The other options either misrepresent the characteristics of ordinary life policies or state conditions that are not applicable to them.