What features a reserve that accumulates at company declared credited interest rates, which are periodically reset?

Universal life insurance is a type of permanent life insurance characterized by its flexible premiums, adjustable death benefits, and a cash value component that functions as a savings reserve. The cash value accumulates on a tax-deferred basis. The insurance company credits interest to this reserve at a "credited interest rate," which it declares periodically (e.g., annually). This rate is often tied to the performance of the company's investment portfolio or current market interest rates and is subject to a contractually guaranteed minimum rate. This mechanism of a company-declared, periodically reset interest rate is a hallmark feature of universal life insurance.

A. "Credited life insurance" is not a standard or recognized classification for a life insurance product in the industry.

B. "Periodic life insurance" is not a standard industry term; it could be confused with term life insurance, which provides coverage for a specific period and typically does not build a cash value reserve.

C. "Premium life insurance" is a vague marketing term, not a technical product category that defines how reserves or cash values are structured and credited with interest.

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1. Babbel

D. F. (1996). Life Insurance Products and Finance: A Primer. The Wharton School

University of Pennsylvania

Financial Institutions Center

Working Paper 96-33.

Page 11

Section on Universal Life Insurance: "With universal life

the insurer periodically declares a 'current' interest rate that it will credit on the policy's cash value for the upcoming period... The current rate is not guaranteed for the life of the policy

but it will never fall below a contractually guaranteed minimum rate."

2. Society of Actuaries (SOA). (2019). U.S. Individual Life Insurance Product and Underwriting Trends.

Page 10

Section 3.1 Universal Life (UL): This section describes Universal Life products

noting their key feature is the accumulation of cash value based on credited interest. It states

"The policyholder’s account value is credited with interest based on the company’s declared interest rate."

3. Trieschmann

J. S.

Gustavson

S. G.

& Hoyt

R. E. (2001). Risk Management and Insurance (11th ed.). South-Western College Publishing.

Chapter 11

Life Insurance: The text explains that universal life insurance policies have a cash value to which the insurer adds interest periodically. It clarifies that this interest rate can be changed by the company

distinguishing it from the fixed cash value schedule of traditional whole life insurance.