Tennessee Life Producer Practice Exam

Which type of life insurance policy combines term insurance with an investment element?

1. Term life

2. Whole life

3. Universal life

4. Variable life

The correct answer is: Universal life

The correct choice is the type of life insurance policy that combines term insurance with an investment element, which is universal life insurance. Universal life insurance provides policyholders with the flexibility to adjust both their premium payments and their death benefit, while also accumulating cash value over time. A portion of the premium paid goes towards the term insurance coverage, while the other portion contributes to the cash value account, which can grow based on interest rates set by the insurer. This dual nature of universal life allows policyholders to have a death benefit like term insurance, but with the added feature of building cash value similar to whole life insurance. This makes universal life insurance distinct in that it reflects the term nature of traditional policies but also incorporates an investment component, enabling policyholders to potentially grow their savings over time. In contrast, term life insurance does not have an investment component and only provides coverage for a specified term. Whole life insurance generally offers permanent coverage with guaranteed cash value but does not typically allow for flexible premium payments or investment growth tied directly to market conditions. Variable life insurance does include an investment element, but its structure is different, allowing policyholders to invest cash values in various investment options, which can introduce more risk.