What is universal life insurance?

• A. A fixed premium, level death benefit term policy with no cash value.
• B. A flexible premium, adjustable death benefit permanent policy with a cash value account earning interest that can be credited.
• C. A policy that only invests in subaccounts with investment risk.
• D. A whole life policy with guaranteed cash value and fixed benefits.

Answer: (B)

Universal life insurance combines a permanent policy with a cash value that grows through credited interest and offers flexible premium payments and an adjustable death benefit. The description described matches this: it’s a permanent policy with a cash value account that earns interest and can be credited, and it allows you to vary premiums while adjusting the death benefit subject to how the cash value is managed. This is different from term insurance, which has fixed premiums, a level or set death benefit, and no cash value; and from whole life, which typically has fixed premiums, guaranteed cash value, and fixed benefits. It also differs from policies that invest only in subaccounts with investment risk (more characteristic of variable products) rather than the stable credited-interest cash value typical of universal life.