Management Notes

Reference Notes for Management

A life policy that contains a monthly mortality charge as well as self-directed investment choices is called a(n):

A life policy that contains a monthly mortality charge as well as self-directed investment choices is called a(n):


Joint Life policy
Variable Universal Life policy
Universal Life Policy

The Correct Answer Is:

  • Variable Universal Life policy

The correct answer is C) Variable Universal Life policy.

A Variable Universal Life (VUL) policy is a life insurance product that combines elements of both insurance and investment. It is characterized by a monthly mortality charge and self-directed investment choices. Let’s delve into the details to understand why the answer is correct and why the other options are not suitable for describing this type of policy.

Why the correct answer is C) Variable Universal Life policy:

Variable Universal Life (VUL) Policy:

1. Monthly Mortality Charge:

A VUL policy includes a monthly mortality charge. This charge covers the cost of providing the life insurance coverage. The amount of this charge depends on factors such as the policyholder’s age, health, and the amount of coverage. The policyholder pays this charge each month to maintain the life insurance component of the policy.

2. Self-Directed Investment Choices:

One of the defining features of a VUL policy is that it allows the policyholder to make investment choices. VUL policies typically offer a range of investment options, such as mutual funds or separate accounts.

Policyholders can allocate their premium payments into these investment options based on their risk tolerance and investment goals. The cash value of the policy is linked to the performance of these investments, and the policyholder has the flexibility to switch investments within the policy.

3. Cash Value:

A VUL policy accumulates a cash value component over time. This cash value can grow or decline based on the performance of the chosen investments. Policyholders can access this cash value through withdrawals or loans, and in some cases, it can even be used to pay the policy premiums.

The investment aspect of a VUL policy provides a potential for growth in the cash value over time, which can be used for various financial needs.

4. Flexibility:

VUL policies are known for their flexibility. Policyholders can adjust the death benefit, premium payments, and investment allocations to align with their changing financial circumstances. This adaptability sets VUL policies apart from more traditional life insurance products.

Why the other options are not correct:

A) Joint Life Policy:

A joint life policy is a type of life insurance that covers two or more individuals under a single policy. It is often used for couples or business partners and pays out a death benefit upon the death of one of the insured individuals.

Joint life policies typically do not involve self-directed investment choices or the accumulation of cash value through investments. They are focused on providing a death benefit and may not include an investment component.

B) Endowment:

An endowment policy is a life insurance policy that pays a lump sum, known as the endowment, to the policyholder at a specific maturity date or upon the death of the insured individual, whichever comes first.

While endowment policies have an investment component, the investments are typically managed by the insurance company, and policyholders do not have self-directed investment choices. Endowment policies are primarily savings-oriented rather than investment-focused like VUL policies.

D) Universal Life Policy:

Universal life insurance policies are a type of permanent life insurance. They do accumulate cash value over time, which is often invested by the insurance company. However, policyholders typically have limited control over the investment choices within a universal life policy.

The cash value growth is influenced by the performance of the insurer’s chosen investments rather than being self-directed as in a VUL policy.

In summary, a Variable Universal Life (VUL) policy is a life insurance product that includes a monthly mortality charge to cover the cost of insurance and offers policyholders the flexibility to make self-directed investment choices. This combination of life insurance and investment features distinguishes it from the other options.

Joint life policies focus on covering multiple individuals under a single policy, endowment policies provide a lump sum payout, and universal life policies involve less self-directed investment control. Therefore, C) Variable Universal Life policy is the correct answer for a policy with these specific features.

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