Tennessee Insurance Practice Exam

The premiums of which type of life insurance can vary based on performance and coverage options?

1. Whole Life

2. Universal Life

3. Term Life

4. Variable Life

The correct answer is: Universal Life

The correct answer highlights a life insurance product known for its flexible features and performance-based premium structure. Universal Life insurance allows policyholders to adjust the premium payments and death benefit amounts within certain limits. This flexibility is beneficial because it enables individuals to manage their coverage according to their financial circumstances and goals. One of the key aspects of Universal Life insurance is that the premiums can vary, as part of the insurance is invested in accounts that may perform differently over time. The interest credited to the cash value of the policy can fluctuate, meaning that if the investment performs well, the cash value may increase, potentially allowing for lower premiums in the future or the ability to skip a premium payment. This performance-based feature sets Universal Life apart from static plans like Whole Life insurance, where premiums are generally fixed for the life of the policy, and Term Life insurance, which usually has a straightforward premium structure for a specified term without an investment component. Variable Life insurance is also an option that allows for investment performance to impact cash value and premiums, but the emphasis here is on Universal Life due to its characteristic adjustability and blend of insurance and savings.