Oklahoma Life Producer Practice Exam

How is the growth of cash value in a Universal Life policy calculated?

1. Fixed rate basis

2. Interest-sensitive basis

3. Randomized rate basis

4. Market-based rate basis

The correct answer is: Interest-sensitive basis

In a Universal Life policy, the growth of cash value is calculated on an interest-sensitive basis. This means that the cash value of the policy is credited with interest that can vary, reflecting current market conditions and the insurer's portfolio performance. Unlike whole life policies, which typically offer fixed cash value growth, Universal Life allows for more flexibility, allowing policyholders to potentially earn a higher return based on prevailing interest rates. This feature provides policyholders with a combination of both security and growth potential, as they benefit from the insurance company's investment performance without facing the market risks directly. Thus, the cash value can fluctuate within certain limits set by the insurer, which is why it is labeled as interest-sensitive rather than fixed or randomized. In summary, the interest-sensitive nature of cash value growth in Universal Life policies is a key distinguishing characteristic that allows policyholders to experience variability in their cash value growth linked to market interest rates.