Washington Life Producer Practice Exam

What type of life insurance offers a guaranteed interest rate with the potential to earn more?

1. Whole life

2. Term life

3. Universal life

4. Endowment policy

The correct answer is: Universal life

The type of life insurance that offers a guaranteed interest rate while also providing the opportunity to earn more is universal life insurance. This product is designed to give policyholders flexibility in their premium payments and the potential to accumulate cash value over time. The cash value grows at a guaranteed minimum interest rate set by the insurer, but it also has the possibility of earning additional interest based on market performance or other factors, depending on the specific design of the policy. Universal life policies are particularly appealing because they allow policyholders to adjust their premiums and death benefit amounts over time, thus accommodating changing financial situations and goals. This flexibility, combined with the guaranteed interest component, makes universal life a unique offering in the realm of life insurance products. Other life insurance options, such as whole life, do provide guaranteed cash value accumulation but usually at a fixed rate and without the dynamic interaction of market factors. Term life does not accumulate cash value at all, as it is primarily designed to provide coverage for a specific term without investment growth. Endowment policies also have structured payouts but are not as flexible as universal life in terms of premium adjustments and cash value growth potential.