Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
In a universal life insurance policy, the insurer typically deducts which amounts from the cash value on a monthly basis?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
In universal life, each premium is credited to the cash value account, from which the insurer deducts the cost of insurance (the mortality charge based on the insured's age and the amount at risk) and expense or administrative charges, then credits interest at the current rate. Because universal life is an unbundled policy, the owner can see the mortality charge, expense charge, and interest credit separately, which is what makes the cash value and coverage responsive to current interest rates and flexible premium payments.
Why the other options are wrong
- B) Dividends are a participating whole life feature; universal life policies generally do not pay dividends.
- C) Sales commissions are paid at issue and surrender charges apply only when the policy is surrendered early; they are not recurring monthly deductions from cash value.
- D) Whole life reserves are irrelevant to universal life, which is not structured like a traditional whole life policy.
Memory hook
Universal life cash value equals premiums minus monthly mortality and expense charges plus credited interest.