Which type of life insurance fundamentally combines features of annual renewable term and a savings component?

Universal life insurance is a type of permanent life insurance that combines a death benefit with a cash value component, offering flexible premiums and an adjustable death benefit. This insurance integrates features of both annual renewable term life insurance—providing a death benefit that can be maintained without needing to re-qualify each year—and a savings account, allowing policyholders to accumulate cash value over time.

Policyholders can vary their premium payments within certain limits, which can benefit those whose financial situations may change. Additionally, the cash value can earn interest, and policyholders have the option to withdraw from or borrow against this cash value, providing financial flexibility. This flexibility and the combination of insurance coverage with a savings component distinguish universal life insurance from both whole life and term life insurance, making it the correct choice in this context.