Universal life insurance combines which two components?

Universal life insurance is structured in a way that provides both a death benefit component and a cash value component, which sets it apart from other types of life insurance. The correct answer highlights that universal life insurance combines a one-year renewable term insurance with a cash value account.

In this arrangement, the policyholder is primarily purchasing a renewable term insurance policy, which means that the coverage is based on the annual renewal of the term, and it allows for flexibility in premium payments. This means the policyholder can adjust the amount of premium paid, which subsequently affects the cash value that accumulates over time.

The cash value account is integral to universal life insurance, as it grows on a tax-deferred basis and can be accessed by the policyholder for loans or withdrawals during their lifetime. This dual structure provides both the protection of life insurance and the potential for savings, making universal life insurance a versatile option for individuals looking for both insurance coverage and a way to build cash value.

Understanding this combination of components is crucial, as it reflects the hybrid nature of universal life insurance and how it can be tailored to meet the policyholder's financial needs over time.