Tennessee Insurance Practice Exam

The investment gains from a Universal Life Policy primarily go toward which component?

1. The premium payments

2. The insured’s beneficiaries

3. The cash value

4. The insurer's operating costs

The correct answer is: The cash value

In a Universal Life Policy, the investment gains generated from the premiums paid primarily contribute to the cash value component of the policy. This cash value grows over time based on the performance of the investments selected by the insurance company, and it can be accessed by the policyholder during their lifetime. Unlike other components of the policy, such as the premium payments, which are required to keep the policy in force, or the benefits paid to the beneficiaries upon the insured's death, the cash value serves as a living benefit that the policyholder can borrow against or withdraw from, offering greater financial flexibility. Moreover, while some of the premium payments may go toward other expenses, including the insurer's operating costs, it is the cash value that benefits from the investment gains generated within the policy. Thus, understanding how the cash value works is essential for policyholders who want to leverage their Universal Life Policy not just for death benefit protection, but also as a potential source of savings and financial growth.