LLQP Life Insurance · Component 2.1 · 30% of the exam
Which statement about the investment component of a universal life policy is correct?
- AReturns are guaranteed by the insurer in every option, since the policy is an insurance contract rather than a security
- BThe investment component cannot lose value, since the insurer must maintain the account at least at the deposits made
- CThe investment component is managed by the beneficiary, who has the greatest interest in its performance
- The policyholder chooses among options and bears the investment risk, which affects whether the policy stays funded
Correct answer: D) The policyholder chooses among options and bears the investment risk, which affects whether the policy stays funded
UL investment options range from guaranteed interest accounts to index-linked accounts. Poor returns can leave the fund unable to cover the cost of insurance. The curriculum stresses the implications of investment choices for the viability of the policy.
Why the other options are wrong
- AOnly guaranteed interest accounts are guaranteed.
- BMarket-linked accounts can lose value.
- CThe beneficiary has no role in managing the investments.
Exam tip
The policyholder chooses the UL investments and bears the risk; poor performance can leave the policy unable to pay its cost of insurance.
Common mistake
Assuming an insurer 'guarantees' a UL policy's investment account.
What this tests
CISRO competency component 2.1 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Life Insurance module. Written against the published curriculum.
More from component 2
- A client has a need lasting about twenty years and compares a ten-year and a twenty-year term policy. The main point to explain is that:
- A client exercises the conversion privilege on his term policy. The permanent premium will be based on:
- A client notices that a small policy costs proportionately more per unit of coverage than a larger one. The explanation is that:
- A client wants to pay monthly rather than annually. The agent should explain that monthly payment:
- A client asks why dividends from her participating policy are not taxed like interest from a bank. The reason is that a dividend is:
- A universal life policyholder is choosing among the investment options inside her policy. She should understand that:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.