Tennessee Insurance Practice Exam

Which of the following statements about Equity Indexed Life Insurance is incorrect?

1. The premiums can be lowered or raised, based on investment performance

2. The cash value in a Universal Life policy may fluctuate to reflect changing assumptions regarding mortality cost, interest, and expense factors

3. It offers a guaranteed minimum interest rate

4. Investment performance directly impacts the death benefit

The correct answer is: It offers a guaranteed minimum interest rate

The statement that "it offers a guaranteed minimum interest rate" is not accurate in the context of Equity Indexed Life Insurance. Typically, Equity Indexed Life Insurance policies provide a death benefit and a cash value component that is linked to a stock market index, such as the S&P 500. While these policies often include a minimum interest rate guarantee on the cash value, the emphasis here is on the performance tied to the equity index. However, the primary characteristic of these policies is the potential for growth based on the index's performance rather than a strict guarantee of a minimum interest rate in all scenarios. This nuanced performance characteristic means that although there might be a minimum guaranteed interest rate offered, the policy's cash value growth can be significantly more volatile and dependent on market fluctuations, which is not the focus of this statement being examined. In contrast, the other statements correctly reflect aspects of Equity Indexed Life Insurance's nature and mechanics, including adjustments based on investment performance, fluctuations of cash value in Universal Life policies, and the influence of investment performance on the death benefit.