University of Central Florida (UCF) FIN4243 Debt and Money Markets Practice Exam 3

Universal Life Insurance is a type of permanent life insurance that uniquely blends features of both term and whole life insurance. This combination allows policyholders to enjoy a flexible premium structure, which can be adjusted over time, in addition to accumulating cash value as the policy matures.

Unlike term insurance that offers only death benefits without any cash accumulation, universal life insurance provides both a death benefit component and a cash value component that grows over time based on interest crediting strategies. This cash value can sometimes be accessed by the policyholder through loans or withdrawals, which adds to the flexibility and utility of the insurance.

Moreover, universal life insurance allows for premium payments that aren't fixed, giving policyholders the ability to pay just the cost of insurance while allowing the cash value to grow with excess funds. This characteristic distinguishes it from other insurance products, which may not provide such adjustable features. Thus, the correct answer illustrates the core attributes of universal life insurance, ensuring policyholders have a blend of flexible insurance coverage along with the potential for growth in cash value.