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Universal Life Death Benefit Option A and B Practice Questions

Updated 12 min read
Key takeaway

Under common universal-life designs, Option A generally pays a level specified amount, while Option B generally pays the specified amount plus account value.

  • As account value changes, the insurer’s net amount at risk and cost-of-insurance deductions can change.
  • Policy definitions, corridor rules, loans, and riders matter; use the exact form and facts rather than assuming every contract is identical.
On this page17 sections
  1. Question 1: calculate Option A
  2. Question 2: calculate Option B
  3. Question 3: compare A and B at the same account value
  4. Question 4: net amount at risk under Option A
  5. Question 5: account value grows under Option A
  6. Question 6: calculate Option B after value growth
  7. Question 7: policy loan reduces net proceeds
  8. Question 8: choosing an option for a stated objective
  9. Question 9: policy charges and lapse risk
  10. Question 10: current values and guaranteed promises
  11. Calculation checklist
  12. Compare net amount at risk over time
  13. Apply a hypothetical account-value calculation
  14. Review the net death benefit, not only account value
  15. Recognize tax and corridor caveats
  16. Reconcile the option with policy charges
  17. Track a loan through the benefit calculation

These original cases focus on common Option A and Option B structures. Option A is often described as a level death benefit: the stated specified amount is the death benefit, subject to contract definitions and required limits. When account value grows, the insurer’s net amount at risk—the amount above the account value that the insurer must cover—often declines. Option B is commonly an increasing death benefit equal to specified amount plus account value, so growth in value increases total benefit while net amount at risk may remain closer to the specified amount. Charges, corridor requirements, policy changes, loans, and death-benefit definitions can alter calculations. These are study scenarios, not actual Pearson questions.

Option A
Commonly level specified amount death benefit
Option B
Commonly specified amount plus account value
Net amount at risk
Insurer risk amount as calculated under policy
Charges
Cost-of-insurance and other deductions can affect account value
Loans/withdrawals
May reduce account value and net proceeds or change benefit calculations
Rule
Use stated policy formula; labels can vary by contract

Question 1: calculate Option A

Level benefit under stated Option A formula

A universal-life policy has a $300,000 specified amount and account value of $40,000. The problem states Option A death benefit equals the specified amount, with no loans or other adjustments. What is the gross death benefit?

  1. $260,000
  2. $300,000
  3. $340,000
  4. $40,000
Answer: B. Under the formula supplied, Option A pays the $300,000 specified amount. Account value is not added to it, so B is correct. A subtracts account value as though calculating one form of net amount at risk, not gross death benefit. C uses the Option B formula. D reports only account value. Actual policies define death benefit and may have corridor requirements or adjustments; use the stem’s explicit formula and distinguish gross benefit from the insurer’s net amount at risk.

Question 2: calculate Option B

Add specified amount and account value

A policy states Option B death benefit is specified amount plus account value. The specified amount is $250,000 and account value is $35,000. No loan or adjustment applies. What is the gross benefit?

  1. $215,000
  2. $250,000
  3. $285,000
  4. $35,000
Answer: C. Add the stated components: $250,000 + $35,000 = $285,000. C is correct. A subtracts the values; B gives Option A’s level amount; D omits the specified amount. This is gross death benefit under the simplified formula, not necessarily the net check after loans, unpaid premium, or policy deductions. The problem expressly states how Option B is calculated.

Question 3: compare A and B at the same account value

Identify the difference caused by Option B

The specified amount is $200,000 and account value is $50,000. Under stated common formulas, what are the gross benefits for Option A and Option B, respectively?

  1. $200,000 and $250,000
  2. $250,000 and $200,000
  3. $150,000 and $200,000
  4. $50,000 and $250,000
Answer: A. Option A equals $200,000 under the supplied level formula. Option B equals $200,000 + $50,000 = $250,000. Thus A is correct. B reverses the options; C and D introduce subtraction or report account value rather than applying the given formulas. Both amounts are gross values before policy loans or other adjustments. The example illustrates the common distinction and does not override contract definitions.

Question 4: net amount at risk under Option A

Subtract account value from level benefit

For exam arithmetic, assume the insurer’s net amount at risk is specified amount minus account value under Option A. The specified amount is $300,000 and account value is $80,000. What is the net amount at risk?

  1. $80,000
  2. $220,000
  3. $300,000
  4. $380,000
Answer: B. Using the stated formula, $300,000 − $80,000 = $220,000. B is correct. A is account value; C ignores the account value; D adds it. The net amount at risk is not necessarily the benefit paid to the beneficiary. It is a simplified measure of the insurer’s exposure under the described formula. Actual contract mechanics can include corridor and mortality rules.

Question 5: account value grows under Option A

Understand the common net-risk direction

Under an Option A policy with a level death benefit, account value grows while specified amount remains constant. Under the simplified net amount at risk formula, what generally happens to the insurer’s net amount at risk?

  1. It generally decreases as account value offsets more of the level benefit.
  2. It necessarily increases dollar for dollar with account value.
  3. It remains equal to the account value.
  4. It becomes the premium paid over the policy’s life.
Answer: A. A describes the common relationship: if death benefit stays level and account value increases, the difference between the two generally declines. B describes neither the simplified formula nor Option A’s typical structure. C confuses net risk with account value. D confuses premiums with current insurer exposure. This is a conceptual direction, not a guaranteed result under every policy; charges, corridor requirements, loans, or changes can affect the calculation.

Question 6: calculate Option B after value growth

Update the benefit when account value changes

Option B equals $200,000 specified amount plus account value. Account value rises from $30,000 to $42,000. With no other changes, what is the new gross death benefit and increase from before?

  1. $242,000, up $12,000
  2. $200,000, unchanged
  3. $230,000, up $30,000
  4. $188,000, down $12,000
Answer: A. New benefit: $200,000 + $42,000 = $242,000. Prior benefit: $200,000 + $30,000 = $230,000. The increase is $12,000, matching the account-value increase. A is correct. B treats it like level Option A. C uses the prior value as the increase. D subtracts rather than adds. Real benefit statements may use a different formula or corridor; the problem provides the simplified rule.

Question 7: policy loan reduces net proceeds

Separate gross benefit from loan deduction

A policy has a stated gross Option A benefit of $250,000 and an outstanding loan plus interest of $18,000. No other deductions apply. What is the approximate net death benefit?

  1. $232,000
  2. $250,000
  3. $268,000
  4. $18,000
Answer: A. Subtract the loan balance from the gross benefit: $250,000 − $18,000 = $232,000. A is correct. B ignores the policy debt. C adds it. D reports only the debt. The policy controls how loans and accrued interest affect proceeds, and other deductions can exist. This calculation demonstrates that a level Option A benefit does not mean the beneficiary’s net check is necessarily the stated face amount.

Question 8: choosing an option for a stated objective

Match increasing benefit preference

An owner wants the total gross death benefit to rise as account value accumulates, using the contract’s common specified-amount-plus-account-value formula. Which option best fits?

  1. Option B
  2. Option A
  3. Extended term nonforfeiture option
  4. Interest-only settlement option
Answer: A. A is correct because common Option B adds account value to the specified amount, so the total death benefit can rise as value grows. Option A is typically level under its formula. C is a nonforfeiture choice after a lapse/surrender event. D is a beneficiary settlement method. The owner should also consider cost-of-insurance charges and premium requirements; an increasing gross benefit does not guarantee adequate account value or prevent lapse.

Question 9: policy charges and lapse risk

Do not infer permanent coverage from a death-benefit option

The owner selects Option B but pays insufficient premiums to cover monthly deductions. Account value falls toward the policy’s minimum. Which statement is best?

  1. Option B does not by itself prevent lapse; review the policy’s funding, charges, guarantees, and grace provisions.
  2. Option B guarantees coverage for life regardless of account value.
  3. The beneficiary must pay all monthly charges automatically.
  4. A growing death benefit removes the need for premium funding.
Answer: A. A correctly separates benefit formula from policy funding. Universal life can lapse if account value and premiums do not support deductions, unless a specific no-lapse guarantee remains satisfied. B and D overstate Option B. C invents beneficiary responsibility. Check the policy’s monthly charges, premium history, no-lapse conditions, grace notice, and in-force illustration. The selected death-benefit option does not erase the contract’s cost structure.

Question 10: current values and guaranteed promises

Use the policy schedule for the actual formula

An illustration uses an assumed interest rate to project Option B account value and future death benefits. What should the applicant understand?

  1. The projection can differ from actual results; guaranteed values and current assumptions must be separated.
  2. The illustrated future account value is legally guaranteed in every policy.
  3. Option B prevents interest from changing.
  4. Only the beneficiary can choose the illustration rate.
Answer: A. A is correct. Universal-life illustrations can display guaranteed and nonguaranteed assumptions; actual credited interest and charges affect account value and policy sustainability. B turns an assumption into a promise. C confuses death-benefit option with interest crediting. D assigns an irrelevant choice. The applicant should review guaranteed columns, current assumptions, premium sufficiency, and lapse tests. The contract and issued illustration control, not a verbal projection.

Calculation checklist

For a simplified problem, write down the exact Option A or Option B formula stated in the stem. Under a common example, A is a level specified amount, B is specified amount plus account value, and net amount at risk may be calculated by subtracting account value from the insurer’s gross obligation. Then separately subtract any stated loan or adjustment to find net proceeds. Do not calculate a tax amount from gross death benefit without the required facts.

Real universal-life policies may include corridor requirements, minimum death benefits, changing specified amounts, loans, riders, monthly deductions, and no-lapse guarantees. Current interest assumptions can affect account value and sustainability. These original scenarios follow the Pearson outline and TDI life guidance; they do not promise that every contract uses identical option labels or formulas. Use the in-force policy and an illustration for an actual policy change.

Compare net amount at risk over time

Option A commonly keeps the specified death benefit level while account value changes, so the insurer’s net amount at risk can decline as account value rises, subject to the contract and corridor rules. Option B commonly pays the specified amount plus account value, so the total death benefit can rise with account value; net amount at risk may behave differently. The definitions and named options vary by policy, so use the stem’s wording. Do not assume that the same premium produces identical cash value or death benefit under both choices.

Apply a hypothetical account-value calculation

Suppose a policy states a $250,000 specified amount and $40,000 account value. Under a simplified Option A description paying the specified amount, the stated death benefit is $250,000 before any loans, charges, or corridor adjustment. Under Option B described as specified amount plus account value, the simplified total is $290,000. The calculation is only valid because the stem defines the options that way. Actual universal-life contracts may use a corridor factor or other definitions, so the policy schedule controls. Never add account value to Option A unless the contract says to.

Review the net death benefit, not only account value

Policy loans and withdrawals can reduce proceeds even when the account statement looks healthy. Monthly deductions continue, and a loan can accrue interest; if account value becomes insufficient, the policy may enter grace or lapse. A favorable current illustration does not guarantee future performance. When comparing options, track specified amount, account value, net amount at risk, policy charges, premium pattern, and loan balance as separate figures. A policy illustration should show guaranteed and non-guaranteed scenarios so the owner can understand how charges and credited rates affect continuation.

Recognize tax and corridor caveats

Federal tax rules can require a minimum death benefit relative to account value, and policy changes or premium funding may affect tax status. A death-benefit option change can also involve underwriting, charges, or a waiting period. A real owner should request an in-force illustration before changing options and ask a tax professional about modified endowment contract or distribution questions. On the exam, use the option definitions provided and avoid treating Option B’s larger current benefit as free: increased net amount at risk can affect insurance costs under the contract.

Reconcile the option with policy charges

In universal life, account value is used in the contract’s monthly deduction process. If a stem says the specified amount stays level but monthly charges rise, a low account value can make the policy harder to sustain even though the option’s named death benefit appears unchanged. Under a specified-amount-plus-account-value design, rising account value can increase the total benefit as stated, but the insurance cost and corridor rules still matter. A comparison should show premium, deductions, net amount at risk, and projected values, not just the option letter.

Track a loan through the benefit calculation

Suppose the specified amount is $250,000, account value is $40,000, and outstanding policy loan plus accrued interest is $12,000. If the contract’s stated Option B benefit is specified amount plus account value before loan deduction, the simplified gross figure is $290,000 and the net amount is $278,000 before any other adjustment. Under a simplified Option A definition paying the specified amount, the corresponding net figure is $238,000. Real contracts may define loan treatment and corridor adjustments differently. The scenario demonstrates why an answer that compares only $250,000 with $290,000 is incomplete when the question includes debt.

Common questions

What is the common difference between UL Option A and Option B?

Option A commonly pays a level specified amount, while Option B commonly pays specified amount plus account value. Exact definitions, corridor rules, and adjustments in the issued policy control. In a test case, apply the facts given and the specific contract provision; do not assume another insurer uses the same design.

Does Option B guarantee a growing death benefit?

Not necessarily. Account value can change with premiums, credited interest, charges, loans, and withdrawals. The contract’s formula and lapse conditions govern the actual benefit. In a test case, apply the facts given and the specific contract provision; do not assume another insurer uses the same design.

Is net amount at risk the same as the beneficiary’s payment?

No. Net amount at risk is an insurer exposure measure under a stated formula. The beneficiary’s net proceeds can be reduced by loans, interest, unpaid charges, or other contract adjustments.

Are these actual Pearson questions?

No. They are original calculations and scenarios based on universal-life concepts in the official Texas Life Agent outline, not recalled Pearson items or policy quotes. In a test case, apply the facts given and the specific contract provision; do not assume another insurer uses the same design.

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