South Carolina Life Insurance Practice Exam

A universal life insurance policy has two types of interest rates that are called?

1. Fixed and Variable

2. Guaranteed and Current

3. Standard and Premium

4. Base and Additional

The correct answer is: Guaranteed and Current

A universal life insurance policy features two interest rates known as guaranteed and current. The guaranteed interest rate is the minimum interest rate that the insurer will credit to the cash value of the policy, ensuring that the values will not fall below a certain level. This provides a safety net for policyholders, as they know their cash value will grow at a specified minimum rate regardless of market conditions. Conversely, the current interest rate can fluctuate and is based on the insurer's investment performance and prevailing market interest rates. This rate can exceed the guaranteed rate, allowing policyholders the potential for higher growth in their cash value if market conditions are favorable. Understanding these rates is crucial for policyholders, as it influences the growth of the cash value and can impact the overall performance of the policy. The option that identifies these two types of interest rates correctly encapsulates the essential features of a universal life insurance policy.