Rhode Island Life Insurance Practice Exam

Which action is NOT possible with a Universal Life policy?

1. Flexible premiums

2. Adjustable death benefits

3. Premiums may be applied as a credit against income tax

4. Cash value growth based on current interest rates

The correct answer is: Premiums may be applied as a credit against income tax

In the context of a Universal Life policy, it's important to understand the fundamental features that define this type of life insurance. Universal Life policies are indeed designed to offer flexibility in both premiums and death benefits, allowing policyholders to adjust these aspects as their financial needs change. The option that states premiums may be applied as a credit against income tax is not correct because the premiums paid for a life insurance policy, including Universal Life, are not tax-deductible. Instead, the death benefit is typically received tax-free by beneficiaries. In contrast, cash value growth in Universal Life policies is based on current interest rates, which aligns fully with this insurance product’s features. Therefore, it's clear that the correct information regarding what is NOT possible with a Universal Life policy centers on the misconception about the tax treatment of premiums.