South Carolina Insurance Practice Exam

Reggie purchased a life insurance policy with a face amount of $500,000, which grew to $600,000 after 15 years. What type of life insurance policy is this?

1. Whole life

2. Term life

3. Universal life

4. Variable life

The correct answer is: Universal life

The correct response identifies the policy as universal life insurance because it represents a blend of flexible premium payments and the potential for cash value accumulation that can grow over time. In this scenario, the policy was initially purchased with a face amount of $500,000 and increased to $600,000 after 15 years, indicating that not only has the policy provided a death benefit, but it has also accumulated cash value. Universal life policies allow policyholders to adjust their premium payments and the death benefit, providing flexibility and the opportunity for the cash value component to grow based on interest rates or investment choices. This contrasts with whole life insurance, which typically offers a guaranteed death benefit and fixed premiums without as much flexibility in terms of adjusting those payments or the death benefit. Term life insurance is primarily focused on providing coverage for a specified period with no cash value accumulation, while variable life insurance has an investment component that can cause its cash value and death benefit to fluctuate based on the performance of investment accounts chosen by the policyholder. The steady growth in this scenario aligns best with universal life, where the cash value grows over time and can be adjusted within certain limits.