Massachusetts Life Producer Practice Exam

What is the best description of a universal life insurance policy?

1. A fixed premium and cash value component.

2. A flexible premium deposit fund with renewable term insurance.

3. A whole life policy with limited benefits.

4. A term insurance policy with no cash value.

The correct answer is: A flexible premium deposit fund with renewable term insurance.

A universal life insurance policy is best described as a flexible premium deposit fund with renewable term insurance. This type of policy allows policyholders to adjust their premium payments and death benefit amounts, providing them with the flexibility to meet their specific financial circumstances and goals. Unlike whole life policies, which have fixed premiums and guaranteed cash values, universal life policies enable the insured to vary their contributions, which can affect the accumulation of cash value over time. Additionally, the renewable term insurance aspect means that the policy typically has a component that can be renewed at the end of the term without requiring evidence of insurability, aligning with the policy's flexible nature. This combination of flexibility in premium payments and the ability to adjust coverage makes universal life policies particularly appealing for those who want both insurance coverage and the potential to accumulate cash value over time.