What does the cash value increase in a life insurance policy affect over time?

The cash value increase in a life insurance policy significantly affects the net amount at risk over time. The net amount at risk is the difference between the face value of the policy (the amount the beneficiary receives upon the insured’s death) and the cash value that has accumulated in the policy. As the cash value grows, the net amount at risk decreases because the insurer’s obligation diminishes by the amount of cash that can be drawn against the policy.

For example, if a policy has a face value of $100,000 and the cash value increases to $30,000, the net amount at risk for the insurer is $70,000. Conversely, as the cash value continues to increase, the amount the insurer is liable for decreases accordingly. This dynamic is particularly relevant in permanent life insurance policies, where cash value is meant to accumulate over time.

While the other choices have their own implications, they are not directly influenced by the cash value growth in the same way. Premiums paid are generally fixed based on policy terms, and policy dividends depend on the insurer’s performance rather than direct cash value accumulation. Claim amounts are determined by the policy conditions at the time of the insured's death, not the cash value. Therefore, understanding how cash value impacts