West Virginia State Life Insurance Practice Exam

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

1. Premiums may be applied as a credit against income tax

2. Premiums can be lowered for the first year

3. Loans may be taken against accumulated cash value

4. Death benefits can be adjusted based on investment performance

The correct answer is: Premiums may be applied as a credit against income tax

A Universal Life policy is a type of permanent life insurance that offers flexible premiums and the ability to accumulate cash value based on the performance of underlying investments. The key features of Universal Life policies allow policyholders to adjust their premiums, take loans against the cash value, and manage death benefits in relation to investment performance. While Universal Life policies provide significant benefits, premiums paid into this type of insurance do not qualify as a credit against income tax. Generally, life insurance premiums are paid with after-tax dollars, and while the death benefit is typically tax-free to beneficiaries, the premiums themselves do not provide a direct tax credit benefit to the policyholder in the way that option A suggests. In contrast, the flexibility of a Universal Life policy supports lowering premiums initially to accommodate policyholders’ financial situations, allows for loans against cash value, and adjusts death benefits based on the performance of investments. These features highlight the adaptability of the policy and underscore why option A stands out as not being possible.