South Carolina Life Insurance Practice Exam

Which of the following Life Insurance policies would be considered interest-sensitive?

1. Whole life insurance

2. Term life insurance

3. Universal life insurance

4. Variable life insurance

The correct answer is: Universal life insurance

Universal life insurance is considered interest-sensitive due to its structure, which involves a flexible premium payment system and an adjustable death benefit. The cash value of a universal life policy is credited with interest, which can vary based on current market rates. This flexibility allows policyholders to adjust their premium payments and the amount of insurance coverage, making the policy responsive to changes in interest rates. In contrast, whole life insurance provides a guaranteed death benefit and fixed premium payments, with a cash value that grows at a set interest rate, offering less sensitivity to interest rate fluctuations. Term life insurance does not build cash value, as it is purely a death benefit protection for a designated term. Variable life insurance allows for investment options in various accounts, which can lead to fluctuating values but does not directly tie its growth to interest rates, making it distinct in its own way. Therefore, universal life insurance is the policy that aligns with the characteristics of being interest-sensitive.