Which statement describes universal life policy characteristics?

Which statement describes universal life policy characteristics?

• A. A fixed premium and face amount policy with no cash value.
• B. A flexible premium and face amount policy with the cost of insurance protection deducted from the policy cash value. Cash value is credited a current interest rate.
• C. No cash value.
• D. Investments are limited to stock mutual funds only.

Answer: (B)

Universal life combines a flexible premium structure with an adjustable death benefit and a cash value that grows based on credited interest while costs of insurance are taken out of the cash value. The statement reflects this setup: you can vary both premium and face amount, and the cost of insurance protection is deducted from the policy’s cash value, with the cash value earning a current credited rate. This captures the distinctive flow of funds in universal life. A policy that has a fixed premium and face amount with no cash value describes a term-like or traditional whole life feature, not universal life. A policy with no cash value is also inconsistent with universal life, which always builds cash value. Finally, limiting investments to stock mutual funds does not describe universal life, which builds cash value through credited interest (and in some variants may fund through separate accounts, but not strictly restricted to stock mutual funds).

Universal life combines a flexible premium structure with an adjustable death benefit and a cash value that grows based on credited interest while costs of insurance are taken out of the cash value. The statement reflects this setup: you can vary both premium and face amount, and the cost of insurance protection is deducted from the policy’s cash value, with the cash value earning a current credited rate. This captures the distinctive flow of funds in universal life.

A policy that has a fixed premium and face amount with no cash value describes a term-like or traditional whole life feature, not universal life. A policy with no cash value is also inconsistent with universal life, which always builds cash value. Finally, limiting investments to stock mutual funds does not describe universal life, which builds cash value through credited interest (and in some variants may fund through separate accounts, but not strictly restricted to stock mutual funds).