Colorado Life Producer License Practice Test

What key feature defines universal life insurance?

1. The certainty of fixed premiums

2. The ability to adjust death benefits

3. The presence of an investment account

4. The inclusion of a cash value component

The correct answer is: The presence of an investment account

Universal life insurance is uniquely characterized by its flexibility, particularly the ability to adjust death benefits. This feature allows policyholders to modify the coverage amount, providing them with greater control over their insurance policy according to their changing financial needs or circumstances. While universal life insurance does include aspects like a cash value component and the option for flexible premiums, the definitive characteristic distinguishing it from other types of permanent life insurance such as whole life insurance is specifically its adjustable death benefit feature. This adaptability is what appeals to many consumers looking for life insurance solutions that can evolve over time as their needs change. The presence of an investment account is indeed a component of universal life insurance, allowing for the accumulation of cash value based on the insurer's portfolio performance, but it is not the defining feature. Similarly, while the presence of a cash value component exists, it is the death benefit flexibility that is the most distinctive aspect of universal life insurance. This flexibility makes it a preferred choice for those who want life insurance that can grow and change with them.