Colorado Life Producer License Practice Test

Can the cash value in a universal life insurance policy exceed the death benefit?

1. Yes, it can exceed the death benefit

2. No, it cannot exceed the death benefit

3. It can exceed only under certain conditions

4. It depends on the policy type

The correct answer is: No, it cannot exceed the death benefit

In a universal life insurance policy, the cash value is a savings component that accumulates interest over time, whereas the death benefit is the amount paid to beneficiaries upon the insured's death. Typically, the structure of universal life insurance is designed such that the cash value does not exceed the death benefit. This is primarily due to the nature of life insurance policies, which ensure that the insured's beneficiaries receive a defined amount in the event of the insured's death. The cash value is meant to provide a savings element and some financial flexibility for the policyholder while ensuring that the death benefit remains the priority. If the cash value were to surpass the death benefit, it could raise issues regarding the primary purpose of life insurance, which is to provide financial support to dependents after the policyholder's demise. Therefore, option B accurately reflects this principle by stating that the cash value cannot exceed the death benefit in a universal life insurance policy.