Looking for the answer to the question below related to  Management ?

Which of the following actions is NOT possible with a Universal Life policy?

 Options:

A) Policy’s cash value may be used to pay premiums B) Premium payments may be made at unscheduled times C) Premiums may be applied as a credit against income tax D) Face amount may be adjusted

The Correct Answer Is:

• C) Premiums may be applied as a credit against income tax

Answer Explanation:

A) Policy’s cash value may be used to pay premiums:

This statement is true for Universal Life (UL) insurance policies. Universal Life policies are a type of permanent life insurance that combines a death benefit with a cash value component.

The cash value of a UL policy grows over time as you make premium payments and accumulate interest or investment returns. Policyholders have the flexibility to use the cash value to pay premiums.

Here’s how it works:

As you make premium payments, a portion of the premium goes toward the cost of insurance, while the remaining portion is invested in the policy’s cash value.

Over time, the cash value grows tax-deferred, meaning you don’t pay taxes on the earnings as long as the money remains inside the policy.

If the cash value is sufficient, you can use it to pay premiums. This can be particularly useful in situations where you may not have the funds to pay premiums out of pocket, but the cash value can cover the cost.

B) Premium payments may be made at unscheduled times:

This statement is also true for Universal Life insurance policies. Universal Life policies offer flexibility when it comes to premium payments.

While there are typically minimum premium requirements, policyholders can often choose when and how much they pay within certain limits.

Here’s why premium payments can be made at unscheduled times:

Universal Life policies allow you to pay premiums more frequently than just annually. You can make premium payments on a monthly, quarterly, or semi-annual basis, depending on the policy terms.

You can choose to make additional premium payments above the minimum requirement if you have extra funds available. This can help build up the cash value more quickly or increase the death benefit.

If your financial situation changes, you can often adjust the premium payment schedule as long as it adheres to the policy’s terms and conditions.

In summary, Universal Life policies provide flexibility when it comes to premium payments, allowing policyholders to make payments at unscheduled times within certain guidelines.

D) Face amount may be adjusted:

This statement is also accurate for Universal Life (UL) insurance policies. One of the key features of Universal Life insurance is the ability to adjust the face amount (death benefit) of the policy to meet changing needs and circumstances.

Here’s how the face amount may be adjusted:

Universal Life policies typically come with a death benefit that can be adjusted within certain limits specified in the policy contract.

Policyholders can request an increase or decrease in the death benefit according to their changing financial situations or insurance needs.

Increasing the death benefit may require additional underwriting or evidence of insurability, while decreasing it is usually a simpler process.

Adjusting the face amount allows policyholders to align the policy with their current financial goals, such as providing more coverage during certain periods or reducing coverage when it’s no longer needed.

In conclusion, Universal Life policies offer the flexibility to adjust the face amount to accommodate changing circumstances, making them versatile and adaptable to policyholders’ needs.

C) Premiums may be applied as a credit against income tax:

This statement is not accurate for Universal Life (UL) insurance policies. Premiums paid for a UL policy are typically not tax-deductible, and you cannot apply them as a credit against income tax.

Unlike some other financial products, such as Health Savings Accounts (HSAs) or certain retirement accounts, UL premiums do not provide a tax deduction or credit.

Here’s why premiums cannot be applied as a credit against income tax with UL policies:

Tax Treatment of Premiums: Premiums paid for a Universal Life insurance policy are typically made with after-tax dollars.

This means that you’ve already paid income tax on the money you use to pay the premiums. Therefore, you cannot deduct these premiums from your taxable income when filing your annual tax return.

Taxation of Cash Value Growth: While the cash value in a UL policy grows tax-deferred, meaning you don’t pay taxes on the earnings within the policy as they accumulate, you may still be subject to taxes when you withdraw or surrender the cash value.

If you take withdrawals or surrender the policy, any gains (the difference between the cash value and your total premiums paid) may be subject to income tax.

However, there are often ways to access the cash value on a tax-advantaged basis, such as through policy loans or withdrawals up to your basis (total premiums paid).

Tax Benefits at Death: While premiums are not tax-deductible, the death benefit paid out to beneficiaries upon the insured’s death is typically income-tax-free. This is one of the tax advantages of life insurance, as it provides a source of tax-free income to beneficiaries.

In summary, Universal Life insurance premiums do not qualify for tax credits or deductions against income tax. Instead, the tax advantages of UL policies are typically realized in the form of tax-deferred growth of the cash value and tax-free death benefits for beneficiaries.

In conclusion,

The correct answer is C) Premiums may not be applied as a credit against income tax, while the other options are possible with a Universal Life (UL) insurance policy.

UL policies offer flexibility when it comes to premium payments, allow policyholders to use the cash value to pay premiums, and provide the option to adjust the face amount to meet changing needs. However, premiums paid for UL policies are not tax-deductible or eligible for tax credits against income tax.

• A disability income policy can prevent an insured from earning a higher income than if he/she were working by utilizing