Primerica Life Producer Practice Test

What typically happens to premiums in a universal life insurance policy?

1. They remain fixed throughout the policy

2. They can fluctuate based on the cost of insurance

3. They are always lower than term insurance premiums

4. They are not required after the first year

The correct answer is: They can fluctuate based on the cost of insurance

In a universal life insurance policy, premiums can fluctuate based on the cost of insurance and other factors. This flexibility is one of the key characteristics of universal life insurance. Policyholders have the option to adjust their premium payments within certain limits, allowing them to pay more in one period and less in another, based on their financial situation. The cost of insurance, which is the primary expense deducted from the cash value of the policy, can vary depending on factors like the insured's age, health, and the overall performance of the insurance company. This variability in costs can lead to changes in the required premiums, facilitating a more adaptable financial planning strategy for the policyholder. The other options do not accurately reflect how universal life insurance policies function. For instance, premiums are not fixed, as they can indeed vary. They can also be higher or lower than term insurance premiums, depending on the specifics of the policy and coverage. Additionally, while universal life policies offer flexible premium payments, there are minimum payment requirements, so premiums are not eliminated after the first year.