Oklahoma Life Producer Practice Exam

Which type of whole life policy is sensitive to interest rates that affect its cash value?

1. Whole Life Assurance Policy

2. Current assumption policy

3. Fixed interest rate policy

4. Cash value life policy

The correct answer is: Current assumption policy

The current assumption policy is designed in a way that it adjusts its interest rates based on current market conditions. This means that the cash value of the policy can fluctuate in response to interest rate changes. The insurer periodically reviews and may revise the interest rate credited to the cash value, allowing the policy to reflect the prevailing economic environment. This feature gives the policyholder an opportunity to benefit from higher interest rates, but it also means the cash value is sensitive to changes in those rates. In contrast, a whole life assurance policy typically provides a guaranteed interest rate and stable cash values that do not fluctuate based on market conditions. A fixed interest rate policy maintains a consistent rate, but it does not adapt to current market rates. A cash value life policy, while it does accumulate cash value, does not necessarily have the same sensitivity to interest rates as a current assumption policy does. Therefore, the nature of the current assumption policy makes it the correct choice for this question about sensitivity to interest rates affecting its cash value.