Which of the following statements concerning universal life insurance is (are) correct?
Policyowners must pay a minimum target premium each year
At the death of the insured, the death benefit and the cash value can be paid to the named beneficiaries
I only
II only
Both I and II
Neither I nor II
The correct answer and explanation is :
The correct answer is Both I and II.
Explanation:
Universal Life Insurance is a flexible permanent life insurance policy that combines both life coverage and a savings component. Policyholders have more control over their premiums, the amount of coverage, and the investment options within the policy. To understand why both statements are correct, let’s break down each part:
Statement I: Policyowners must pay a minimum target premium each year.
This statement is correct. One of the key features of universal life insurance is that it allows flexibility in premium payments. While the policyholder can adjust the amount of premiums, there is a minimum target premium that must be paid to keep the policy in force. This target premium is typically set to cover the cost of insurance (death benefit) and administration charges, and it ensures the policy remains active. If the policyholder doesn’t pay the minimum premium, the policy may lapse or have reduced benefits. However, above this minimum, policyholders can pay more if they choose, and the excess funds can accumulate in the policy’s cash value.
Statement II: At the death of the insured, the death benefit and the cash value can be paid to the named beneficiaries.
This statement is also correct. Upon the death of the insured, the beneficiaries receive the death benefit, which is the face value of the insurance policy. In addition to the death benefit, the cash value can also be paid out, but it depends on the specific policy options chosen by the insured. Universal life policies have a savings component, meaning part of the premiums paid goes toward building cash value over time. When the policyholder passes away, if the policy has accumulated sufficient cash value, this can be paid to the beneficiaries along with the death benefit, although it may be subject to certain conditions or the type of death benefit option chosen.
In conclusion, both statements regarding universal life insurance are correct, making “Both I and II” the right answer.