New Jersey Life Producer Practice Exam

Which feature distinguishes Universal Life insurance from other types of permanent insurance?

1. Fixed premium rates

2. Flexible premium payments

3. Automatic premium loan

4. No cash value accumulation

The correct answer is: Automatic premium loan

Universal Life insurance is primarily distinguished from other types of permanent insurance by its flexible premium payments. This feature allows policyholders to adjust their premium payments varying from year to year, as long as they meet the minimum required premium. This flexibility is beneficial for individuals whose financial situations may change, enabling them to increase or decrease their contributions based on their current resources and needs. In comparison to other permanent insurance policies, such as whole life, which typically have fixed premiums, the flexibility in Universal Life allows it to adapt more closely to policyholders' financial capabilities and goals. Furthermore, while some policies may include automatic premium loans, this is not a defining feature of Universal Life; it is more characteristic of policies with a loan provision that allows the insurer to automatically deduct the premium from the cash value if it remains unpaid. The cash value accumulation aspect of Universal Life insurance also differs from typical life insurance in that it doesn’t offer a guaranteed cash value growth like whole life insurance does, but rather, the growth can vary based on the performance of selected interest rates or investments. Thus, the signature characteristic of Universal Life unfortunately distinguishes it primarily through the allowance for adaptable, flexible premium payments.