What is the defining characteristic of a Universal Life policy?

The defining characteristic of a Universal Life policy is the ability to adjust premiums and death benefits. This type of policy offers a flexible premium payment structure that allows policyholders to change their premium amount and the death benefit provided, within certain limits established by the insurer.

This flexibility is a significant advantage of Universal Life insurance, as it lets policyholders adapt their coverage to their changing financial situations or needs over time. For example, if a policyholder experiences a financial windfall, they may choose to increase their premium payments to build cash value more rapidly or raise their death benefit. Conversely, if they encounter financial difficulties, they can reduce premium payments or even temporarily stop them without losing coverage, as long as there is enough cash value to cover the cost of insurance.

Other options do not capture this key feature of Universal Life policies; fixed premiums are characteristic of whole life insurance, guaranteed cash value accumulation is more associated with whole life policies, and a single premium payment refers to a policy paid entirely with one lump sum, which does not provide the ongoing flexibility seen in Universal Life insurance.