Tennessee Life Producer Practice Exam

Which term describes a life insurance policy that displays both interest and fees?

1. Term Life Insurance

2. Whole Life Insurance

3. Universal Life Insurance

4. Variable Life Insurance

The correct answer is: Universal Life Insurance

The term that describes a life insurance policy incorporating both interest and fees is Universal Life Insurance. This type of policy functions with a cash value component that earns interest over time; however, it also includes various fees related to the policy's administration and cost of insurance. Universal Life Insurance is designed to provide more flexibility than traditional whole life policies, allowing policyholders to adjust their premiums and death benefits within certain limits. As the cash value grows, it accumulates interest, which can be impacted by market performance or other factors depending on the policy. The fees associated with this policy can include cost of insurance charges, administrative charges, and any other expenses incurred in managing the policy. This dual nature of accumulating interest while also incurring fees makes Universal Life Insurance distinct from other options such as Term Life Insurance, which does not have a cash value component, and Whole Life Insurance, which has fixed premiums and guaranteed death benefits but typically does not allow for adjustments in the same manner. Variable Life Insurance involves investment options where the cash value fluctuates based on market performance, which differs from the interest accumulation and fees seen in Universal Life policies.