Tennessee Insurance Practice Exam

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Study for the Tennessee Insurance Exam. Prepare with a database of questions and flashcards, each offering hints and detailed explanations. Ace your exam confidently!

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What type of life insurance generally allows cash value to fluctuate based on interest rates?

Whole Life
Universal Life
Term Life
Endowment Life

The correct answer is: Universal Life

Universal life insurance is designed to provide flexibility in both premium payments and death benefit while also allowing for the accumulation of cash value. One of its distinguishing features is the ability for the cash value to earn interest based on current market rates, which can vary over time. This means that as interest rates rise or fall, the cash value within a universal life policy can also increase or decrease accordingly. In contrast, whole life insurance has a more rigid structure where the cash value grows at a guaranteed rate set by the insurer, usually offering a more stable but lower growth potential. Term life insurance does not build cash value at all, as it focuses solely on providing death benefit protection for a specified period. Endowment life insurance combines features of both life insurance and savings, ensuring a payout either at death or after a specific period but does not typically offer the same fluctuating cash value tied to interest rates. This combination of features in universal life insurance is what makes it stand out, allowing policyholders to potentially increase their cash value linked to changing interest conditions in the market.