Which policy is described as being subject to a contract interest rate credited to cash value?

• A. Whole life
• B. Universal life
• C. Variable whole life
• D. Term life

Answer: (B)

The essential idea is how the cash value in a permanent life policy grows. In universal life, the cash value earns interest that is credited under the policy contract. The insurer specifies a credited rate, which can change over time but has a guaranteed minimum, and this rate determines how the cash value grows within the contract. This flexible premium structure and the cash value growth tied to a contractually credited interest rate is a defining feature of universal life.

Term life has no cash value to credit interest to, so the concept doesn’t apply. Variable whole life ties cash value growth to the performance of investment subaccounts rather than a fixed contract rate. Whole life does have cash value and a guaranteed fixed rate, but it isn’t described as a contract rate credited to cash value in the same way universal life is.