How does the cash value of a universal life policy grow?

Enhance your knowledge for the Uniform Combined State Law Exam. Explore interactive quizzes and detailed explanations. Prepare now!

The cash value of a universal life policy grows at a minimum guaranteed rate, which is a defining characteristic of this type of insurance product. Universal life insurance offers flexibility in premium payments and death benefits, along with the ability to accumulate cash value over time.

The cash value component earns interest, and the policy specifies a minimum rate that ensures the cash value increases regardless of market conditions. This guarantees some level of growth, which provides policyholders with a sense of security regarding their investment.

In addition to the minimum guaranteed rate, the cash value can also increase beyond this guarantee depending on the insurer’s performance and any interest credits applied. However, the key takeaway is that it will always grow at least at the minimum guaranteed rate, safeguarding against zero growth scenarios.

Understanding this aspect is crucial for evaluating how universal life policies can fit into long-term financial planning, as the accumulation of cash value can be accessed through loans or withdrawals, adding to the policy's overall utility.

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