NASAA Series 65, Uniform Investment Adviser Law ExaminationInvestment Vehicle CharacteristicsMedium
A client is interested in an investment that offers tax-advantaged growth potential, a death benefit, and the ability to choose from a variety of sub-accounts for investment allocation. Which of the following investment vehicles best fits this description?
- AFixed Annuity
- BCertificate of Deposit (CD)
- CVariable Universal Life Insurance
- DMutual Fund
Show answer & explanationAnswer & explanation
Correct answer: C. Variable Universal Life Insurance
Variable Universal Life Insurance combines features of universal life insurance with the investment flexibility of variable life insurance, offering tax-advantaged growth, a death benefit, and investment choices within sub-accounts.
Why the other options are wrong
- A. Fixed annuities offer guaranteed payments but lack investment choice and growth potential tied to market performance.
- B. Certificates of Deposit are low-risk savings instruments with fixed interest rates and no death benefit or investment sub-accounts.
- D. Mutual funds offer diversification and professional management but do not provide a death benefit or the same tax treatment as life insurance policies.
Variable Universal Life (VUL) Insurance
A type of permanent life insurance that combines a death benefit with a savings component, allowing the policyholder to invest in various sub-accounts and adjust premiums and death benefits.
- Offers flexible premiums and death benefits.
- Investment choices are made by the policyholder within sub-accounts.
- Cash value grows on a tax-deferred basis.
- Subject to market risk based on sub-account performance.
Memory trick: VUL: Versatile, Unlimited, Life-long investments.