Oklahoma Life Producer Practice Exam

If the cash value in a universal policy goes to zero, the policy __________

1. matures

2. remains active

3. laps

4. increases in value

The correct answer is: laps

When the cash value in a universal life insurance policy goes to zero, the policy lapses. Universal life insurance is designed to provide flexibility in premium payments and benefits, allowing the policyholder to adjust their premium payment amounts and the face amount of the insurance coverage. However, this flexibility also means that if the cash value depletes completely, there are no funds left to cover the cost of insurance and administrative fees. As a result, the policy cannot sustain itself financially and ultimately lapses, meaning that the coverage ends and the policyholder no longer has life insurance protection. Maintaining a minimum cash value is essential for the continuity of the policy, and once it reaches zero, the insurance coverage effectively terminates. This situation emphasizes the importance of understanding the costs associated with maintaining a universal life policy and the impact of withdrawing funds or not making sufficient premium payments.