PSI Ohio Insurance Practice Exam

What is a characteristic of indexed universal life insurance?

1. Guaranteed death benefit

2. No cash value accumulation

3. Indexed to a specific stock index

4. Fixed-rate interest crediting

The correct answer is: Indexed to a specific stock index

Indexed universal life insurance is designed to provide policyholders with the opportunity for cash value accumulation that is linked to a specific stock index, such as the S&P 500. This linkage means that the cash value growth is based on the performance of the chosen index, allowing for potential increases during favorable market conditions while often incorporating safeguards against market losses. This characteristic sets indexed universal life policies apart from traditional universal life insurance, which might offer fixed or variable interest rates. In addition, this type of policy typically comes with features that protect against a negative performance in the index, ensuring that the policy retains a minimum cash value. The agility of having cash value tied to stock performance is a significant appeal, providing the possibility of higher returns compared to fixed-interest policies. Other aspects of indexed universal life insurance, such as the guaranteed death benefit, do not hinge solely on the indexing mechanism, and cash value accumulation is indeed a key feature, distinguishing it from other types of life insurance where cash value might not be present. The use of indexed growth is a central feature of this product, emphasizing potential for enhanced performance linked to market indices.