Question

Universal life insurance combines elements from term and whole life insurance. Term policies provide a: Death benefit and a savings component Death benefit only Savings vehicle only Whole life policies provide a: Death benefit and a savings component with fixed rate features Savings vehicle only Death benefit and a savings component with variable rate features Universal policies provide a: Death benefit and a savings component with variable rate features Death benefit only Savings vehicle only To understand how universal premiums are allocated, consider the following example. Larry is a 40-year-old lawyer who just bought a universal life insurance policy to protect his two children (ages 11 and 13) in the event of his death. Each year, Larry chooses how much he would like to contribute to the policy, as shown in the first row of the following table. An administrative fee along with the cost of the death benefit (the portion of the policy) is the payment. The resulting amount goes into the pure insurance savings cash-value (or savings pure insurance added to subtracted from ) portion of the policy. This money earns interest at a rate of market-based fixed return. Based on the given information, calculate the amount that is added to the cash-value portion of the policy in each of the first three years. Year 1 Year 2 Year 3 Premium (Annual Contribution) $2,700 $2,200 $1,500 Administrative Fee 85 85 85 Cost of Death Benefit 100 100 100 Amount Added to Cash Value The cost of the death benefit portion of universal policies is only fixed for certain periods and rises with age, as is the case with life insurance policies. Suppose that in the 11th year of his policy, Larry's cost of death benefit term whole has risen substantially. At the same time, he is helping to pay his mother's medical expenses after a major surgery and currently cannot afford to pay his life insurance premium. True or False: Under the terms of a standard universal policy, if Larry stops paying his premiums, then Larry's policy will be canceled, and the value of the cash portion will be paid out to him immediately. False True

Universal life insurance combines elements from term and whole life insurance.
Term policies provide a:
Death benefit and a savings component
Death benefit only
Savings vehicle only
Whole life policies provide a:
Death benefit and a savings component with fixed rate features
Savings vehicle only
Death benefit and a savings component with variable rate features
Universal policies provide a:
Death benefit and a savings component with variable rate features
Death benefit only
Savings vehicle only
To understand how universal premiums are allocated, consider the following example.
Larry is a 40-year-old lawyer who just bought a universal life insurance policy to protect his two children (ages 11
and 13) in the event of his death. Each year, Larry chooses how much he would like to contribute to the policy, as
shown in the first row of the following table. An administrative fee along with the cost of the death benefit (the
portion of the policy) is
the payment. The resulting amount goes into the
pure insurance
savings
cash-value (or
savings
pure insurance
added to
subtracted from
) portion of the policy. This money earns interest at a
rate of
market-based
fixed
return. Based on the given information, calculate the amount that is added to the cash-value portion of the policy in
each of the first three years.
Year 1 Year 2 Year 3
Premium (Annual Contribution) $2,700 $2,200 $1,500
Administrative Fee 85 85 85
Cost of Death Benefit 100 100 100
Amount Added to Cash Value
The cost of the death benefit portion of universal policies is only fixed for certain periods and rises with age, as is the
case with
life insurance policies. Suppose that in the 11th year of his policy, Larry's cost of death benefit
term
whole
has risen substantially. At the same time, he is helping to pay his mother's medical expenses after a major surgery
and currently cannot afford to pay his life insurance premium.
True or False: Under the terms of a standard universal policy, if Larry stops paying his premiums, then Larry's policy
will be canceled, and the value of the cash portion will be paid out to him immediately.
False
True

Added by Isabel F.

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