Primerica Life Producer Practice Test

Which type of life insurance policy is considered to be interest sensitive?

1. Whole Life Insurance

2. Term Life Insurance

3. Universal Life Insurance

4. Variable Life Insurance

The correct answer is: Universal Life Insurance

The correct choice, Universal Life Insurance, is considered interest sensitive because it allows policyholders to adjust their premiums and death benefits, with a portion of the premium being allocated toward a cash value account that earns interest. The interest credited to this cash value can fluctuate based on current market interest rates, making the policy responsive to changes in economic conditions. With Universal Life Insurance, the cash value growth is not fixed but instead varies depending on the insurance company's performance and market rates, which imbues flexibility and responsiveness to interest rates. This characteristic is distinct from other types of life insurance, which typically have more rigid structures. For instance, Whole Life Insurance has guaranteed cash value growth at a fixed rate, while Term Life Insurance does not accumulate cash value at all. Variable Life Insurance does have an investment component, but it primarily involves investment risk tied to the policyholder’s choices rather than being defined specifically by interest rates.