South Carolina Life Insurance Practice Exam

What are the two types of interest rates associated with universal life policies?

1. Fixed and variable

2. Guaranteed and current

3. Increasing and decreasing

4. Decreasing Term

The correct answer is: Guaranteed and current

In universal life insurance policies, the two types of interest rates are guaranteed and current. The guaranteed interest rate is the minimum rate that the insurer promises to pay on the cash value of the policy, ensuring that the policyholder has a baseline level of growth. This feature provides a safety net, as the insured can rely on this rate even in fluctuating economic conditions. On the other hand, the current interest rate is the actual rate that may be credited to the cash value based on the insurer's performance and prevailing interest rates at the time. This rate can vary over time, reflecting the insurer's investment earnings and market conditions. By offering these two rates, universal life policies provide flexibility and allow policyholders to benefit from potential higher returns without exposing them to full investment risk. Understanding these mechanics is crucial for anyone considering universal life insurance, as it directly impacts the growth of the policy’s cash value and the overall benefits received.