PSI Ohio Insurance Practice Exam

Which of the following statements is TRUE regarding a universal life insurance policy?

1. It guarantees a fixed interest rate.

2. It offers flexible premiums.

3. It has no cash value.

4. It covers only terminal illness.

The correct answer is: It offers flexible premiums.

Universal life insurance policies are designed to provide policyholders with flexibility in several aspects, particularly premiums. One of the key features of universal life insurance is that it allows the insured to adjust their premium payments within certain limits. This means that policyholders can choose to pay more than the minimum premium during some periods and less during others, which provides an element of financial adaptability based on their current needs or circumstances. This flexibility makes universal life attractive to individuals who may want to vary their contributions based on their financial situation, thereby ensuring that they can maintain their coverage without being locked into a rigid payment schedule. In contrast, other types of life insurance, such as whole life policies, typically require consistent premium payments. The other statements provided do not accurately reflect the characteristics of universal life insurance. For instance, while some policies may offer a fixed interest rate, universal life generally includes a variable interest component based on market conditions. Additionally, universal life policies typically have a cash value that grows over time as premiums are paid and interest is credited. Lastly, these policies are not limited to covering only terminal illness; they cover a wide range of circumstances, including death benefits payable to beneficiaries upon the policyholder's passing.