Universal

Lesson

Universal life insurance is a type of permanent life insurance that combines the features of term life insurance and a savings component. It offers flexibility in premium payments, death benefits, and investment options. Policyholders can adjust their premiums and death benefits to meet their changing needs, and the policy's cash value can be invested in various investment options.

Practice Question #1

Which type of life insurance combines term life insurance with a savings component and offers flexible premium payments?

A) Whole life insurance

B) Variable life insurance

C) Universal life insurance

D) Term life insurance

Select an option above to see an explanation here.

A) Whole life insurance has fixed premiums and guaranteed cash value growth. B) Variable life insurance has investment options that include stocks, bonds, and mutual funds. C) Universal life insurance combines term life insurance with a savings component and offers flexible premium payments. D) Term life insurance covers a specified term, typically 10, 20, or 30 years.

Terms

Universal life insurance:: A type of permanent life insurance that combines term life insurance with a savings component.
Flexible premium:: Premium payments that the policyholder can adjust to meet their changing needs.
Death benefit:: The amount paid to beneficiaries upon the insured's death.
Cash value:: The savings component of a universal life insurance policy that can be invested in various investment options.
Surrender value:: The amount a policyholder receives if they cancel their universal life insurance policy.
Maturity date:: The date at which a universal life insurance policy's cash value equals the death benefit, typically at age 100.

Practice Question #2

What is the cash value of a universal life insurance policy used for?

A) Paying policy premiums

B) Investing in various investment options

C) Providing the death benefit

D) Both A and B

Select an option above to see an explanation here.

A) The cash value can be used to pay policy premiums. B) The cash value can be invested in various investment options. C) The death benefit is separate from the cash value. D) The cash value can be used to pay policy premiums and invest in various investment options.

Do Not Confuse With

Whole life insurance:: A type of permanent life insurance with fixed premiums and guaranteed cash value growth.
Variable life insurance:: A type of permanent life insurance with investment options that include stocks, bonds, and mutual funds.
Indexed universal life insurance:: A type of universal life insurance with investment options tied to a market index, such as the S&P 500.
Term life insurance:: Temporary life insurance that covers a specified term, typically 10, 20, or 30 years.

Practice Question #3

What happens when a universal life insurance policy reaches its maturity date?

A) The policyholder receives the cash value.

B) The policyholder receives the death benefit.

C) The cash value equals the death benefit.

D) The policy is automatically renewed.

Select an option above to see an explanation here.

A) The policyholder does not receive the cash value at maturity. B) The policyholder does not receive the death benefit at maturity. C) At maturity, the cash value equals the death benefit, typically at age 100. D) The policy does not automatically renew at the maturity date.

Historical Example

In the 1980s, universal life insurance gained popularity as interest rates were high, and policyholders could earn significant returns on their cash value investments. However, as interest rates declined in the 1990s, many policyholders found their policies underfunded, leading to increased premiums or reduced death benefits.

Practice Question #4

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Example Series 65 Example Practice Question

Real-World Example

A young couple with a new baby purchases a universal life insurance policy to financially protect their growing family. As their income increases, they can adjust their premium payments and death benefits to protect their loved ones.