West Virginia State Life Insurance Practice Exam

What type of life policy invests in products such as money-market funds, long-term bonds, and equities?

1. Whole Life

2. Term Life

3. Variable Life

4. Universal Life

The correct answer is: Variable Life

The correct answer is that a Variable Life policy invests in products such as money-market funds, long-term bonds, and equities. This type of life insurance combines a death benefit with an investment component, allowing the policyholder to allocate the cash value among a variety of investment options. Unlike Whole Life and Term Life policies, which have fixed premiums and benefits with no investment flexibility, Variable Life policies provide the opportunity for cash value accumulation tied to market performance. This allows policyholders to potentially grow their cash value through investment choices, which can lead to greater returns, albeit with increased risk. The value of the policy can fluctuate based on the performance of the selected investment options, making it a hybrid of life insurance and investment. Universal Life policies offer some investment flexibility as well but typically have a more conservative approach to cash value growth than Variable Life policies.