Massachusetts Life Producer Practice Exam

Which statement regarding universal life insurance is correct?

1. It has no investment component.

2. Cash value accumulations have guaranteed minimum interest rate.

3. The death benefit can never be adjusted.

4. It can only be converted to a whole life policy.

The correct answer is: Cash value accumulations have guaranteed minimum interest rate.

The statement that cash value accumulations have a guaranteed minimum interest rate is correct regarding universal life insurance. Universal life insurance is a flexible permanent life insurance policy that combines a death benefit with an investment component. One of the key features of this type of policy is that it allows policyholders to accumulate cash value, which can grow over time. The cash value component typically earns interest, and many universal life policies provide a guaranteed minimum interest rate to protect the policyholder from fluctuations in investment performance. This aspect ensures that the cash value will not decrease, even if market conditions are unfavorable, adding a level of security for the policyholder. The other choices do not accurately reflect the nature of universal life insurance. The idea that universal life has no investment component is incorrect, as the policy includes an investment element that can appreciate over time. The characterization that the death benefit can never be adjusted is misleading; in fact, one of the benefits of universal life insurance is the ability to adjust the death benefit within certain guidelines. Lastly, universal life insurance can potentially be converted to other types of policies, not just a whole life policy, offering additional flexibility instead.