Washington Life Producer Practice Exam

What type of life insurance policy has cash values that vary depending on the performance of investments?

1. Whole Life

2. Universal Life

3. Variable Whole Life

4. Term Life

The correct answer is: Variable Whole Life

The type of life insurance policy that has cash values which vary based on the performance of investments is the Variable Whole Life policy. This type of insurance combines a death benefit with a cash value component that is invested in a variety of separate accounts, similar to mutual funds. As these investments perform, the cash value can increase or decrease, offering a potential for higher returns compared to more traditional life insurance policies with fixed cash values. Variable Whole Life policies provide the policyholder with the flexibility to allocate premiums among different investment options and the opportunity to benefit from market performance, making them more dynamic and potentially more lucrative over the long term. However, they also come with higher risks, as poor investment performance can lead to a decrease in the cash value. In contrast, Whole Life policies typically have guaranteed cash values that grow at a fixed rate, Universal Life policies offer flexible premiums and adjustable death benefits but have cash values that generally grow at a specified interest rate, and Term Life policies do not have a cash value component at all. Thus, the defining characteristic of Variable Whole Life is its investment-linked cash value that fluctuates based on market performance.