West Virginia State Life Insurance Practice Exam

What is a common feature of a variable life insurance policy?

1. Guaranteed cash value

2. Flexibility in premium payments

3. Investment options linked to market performance

4. No death benefit component

The correct answer is: Investment options linked to market performance

A variable life insurance policy is designed to provide policyholders with the ability to invest their cash values in a variety of investment options, such as stocks, bonds, or mutual funds. This investment feature is closely linked to market performance, which means the cash value and potentially the death benefit of the policy can fluctuate based on the performance of the investments chosen by the policyholder. The appeal of this structure is that it offers the opportunity for greater growth compared to traditional whole life insurance, which typically has a guaranteed cash value that does not change. In variable life insurance, the risk associated with market performance can lead to higher rewards, but it also means the cash value and death benefit can decrease if the investments perform poorly. This flexibility in investment choices is a key aspect of variable life insurance, distinguishing it from other types of life insurance policies that do not allow policyholders to directly influence their cash value through investment decisions.