Rhode Island Life Insurance Practice Exam

Which type of life policy contains a monthly mortality charge as well as self-directed investment choices?

1. Whole life insurance

2. Term life insurance

3. Variable universal life

4. Flexible premium adjustable life

The correct answer is: Variable universal life

The option referring to variable universal life policies correctly identifies a product that includes both a monthly mortality charge and the flexibility of self-directed investment choices. Variable universal life insurance is a hybrid life insurance policy that combines features of both variable life insurance and universal life insurance. This means that policyholders have the ability to allocate their cash value among a variety of investment options, such as stocks, bonds, or mutual funds, allowing for potential growth based on market performance. Each month, the insurer deducts a mortality charge from the account, which covers the cost of insurance, ensuring that the policy remains in force. This ability to direct investments, together with the cost associated with the insurance, makes variable universal life products unique and suited for those looking for both coverage and investment opportunities. On the other hand, whole life insurance provides a guaranteed death benefit and a cash value component that grows at a fixed rate but does not offer self-directed investment choices. Term life insurance focuses solely on providing a death benefit for a specific period without an investment component, while flexible premium adjustable life insurance gives some adaptability regarding premiums and death benefits but lacks the investment choice aspect inherent in variable universal life policies.