Tennessee Insurance Practice Exam

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Which life insurance policy allows for self-directed investment options along with mortality charges?

Whole life insurance
Term life insurance
Variable Universal Life insurance
Modified Endowment Contract

The correct answer is: Variable Universal Life insurance

Variable Universal Life insurance is a type of life insurance policy that combines features of both universal life insurance and variable life insurance. The key aspect that makes this policy distinct is the self-directed investment options it offers. Policyholders can allocate their premiums among a variety of investment options, which can include stocks, bonds, and mutual funds. This flexibility allows individuals to potentially grow their cash value more aggressively compared to more traditional policies. In addition to these self-directed investment opportunities, Variable Universal Life insurance policies also come with mortality charges that cover the cost of insurance. That means while the policyholder has the ability to manage their investment portfolio, they still pay for the insurance protection provided by the policy, which is reflected in the mortality charges deducted from their account. Other types of policies, such as Whole Life insurance, Term life insurance, and Modified Endowment Contracts, do not offer the same combination of investment control and mortality charges, which makes Variable Universal Life insurance the correct answer in this case.