Chartered Life Underwriter Practice Exam 2025 - Free CLU Practice Questions and Study Guide

The choice of universal life insurance as the correct answer is based on its distinctive feature of combining both a life insurance component and an investment component. Universal life insurance is designed to provide flexibility in premium payments, death benefits, and the investment of cash value. Policyholders can adjust their premium payments and the amount of the death benefit, which allows for greater control over their financial planning.

The investment component allows a portion of the premium to be allocated to a cash value account, which can earn interest based on current market rates or other performance metrics. This cash value can grow over time, providing potential for savings or investment growth while still offering life insurance protection.

Term life insurance, on the other hand, solely provides a death benefit for a specified period without any cash value accumulation or investment feature. Whole life insurance is similarly focused on providing a guaranteed death benefit and accumulating cash value but does not offer the premium flexibility characteristic of universal life. Endowment policies are designed to pay out a benefit at the end of a specific term or upon the policyholder's death, but they don't provide the same level of investment flexibility that universal life offers.