California Life-Only & Accident and Health AgentLife InsuranceHard
A 40-year-old client is seeking a life insurance policy that offers flexible premiums and an adjustable death benefit, along with the potential for cash value growth tied to a separate account. Which type of policy would best suit these needs?
- AWhole Life Insurance
- BVariable Universal Life Insurance
- CTerm Life Insurance
- DUniversal Life Insurance
Show answer & explanationAnswer & explanation
Correct answer: B. Variable Universal Life Insurance
Variable Universal Life (VUL) insurance offers flexible premiums, adjustable death benefits, and cash value growth tied to investment sub-accounts (separate account). This combination distinguishes it from other policy types.
Why the other options are wrong
- A. Whole Life has fixed premiums and a guaranteed death benefit, with guaranteed cash value growth, not flexible premiums or separate account investment.
- C. Term Life provides coverage for a specific period with no cash value component.
- D. Universal Life offers flexible premiums and adjustable death benefits, but its cash value growth is typically interest-sensitive, not tied to a separate investment account.
Variable Universal Life (VUL)
A flexible premium, adjustable death benefit life insurance policy that allows the policyholder to direct the investment of cash values into a separate account, which contains various sub-accounts similar to mutual funds.
- Flexible premiums and adjustable death benefit.
- Cash value growth tied to investment performance of separate accounts.
- Policyowner bears investment risk.
- Requires a securities license to sell (due to investment component).
Memory trick: VUL: Variable investments, Universal flexibility, for Life.