Which policy type is described as the one where the amount needed to keep the policy in force for the current year is determined?

Which policy type is described as the one where the amount needed to keep the policy in force for the current year is determined?

• A. Whole life
• B. Limited payment
• C. Universal life
• D. Adjustable life

Answer: (C)

In universal life, premiums are flexible and the policy has a cash value that earns interest. Each year the policy incurs costs of insurance and other charges that must be covered to keep the policy active. The insurer determines the amount needed for that year to maintain coverage—the minimum premium or funding required for the policy to stay in force. If you pay at least that amount (or the cash value pays for it through deductions), the coverage continues. If the funds fall short, the cash value can be exhausted and the policy may lapse. This annual determination of the amount needed to maintain the policy is what sets universal life apart.

In universal life, premiums are flexible and the policy has a cash value that earns interest. Each year the policy incurs costs of insurance and other charges that must be covered to keep the policy active. The insurer determines the amount needed for that year to maintain coverage—the minimum premium or funding required for the policy to stay in force. If you pay at least that amount (or the cash value pays for it through deductions), the coverage continues. If the funds fall short, the cash value can be exhausted and the policy may lapse. This annual determination of the amount needed to maintain the policy is what sets universal life apart.