Question

For a universal life policy's cash value accumulations to receive favorable tax treatment, a specific percentage of premiums must be used to purchase:

A. Paid-up additions
B. Death benefit
C. One year term insurance
D. Guaranteed amounts of coverage

Answer 1

To receive favorable tax treatment, a specific percentage of premiums must be used to purchase paid-up additions in a universal life policy.

Step-by-step explanation:

In order for a universal life policy's cash value accumulations to receive favorable tax treatment, a specific percentage of premiums must be used to purchase Paid-up additions.

When a policyholder pays premiums into a universal life insurance policy, a portion of those premiums can be used to purchase additional coverage, known as paid-up additions. These additions increase the policy's cash value and death benefit.