Washington Life Producer Practice Exam

Which insurance product generally offers the highest risk and potential reward?

1. Term life insurance

2. Whole life insurance

3. Variable life insurance

4. Universal life insurance

The correct answer is: Variable life insurance

Variable life insurance typically offers the highest risk and potential reward among the listed options due to its unique structure. With variable life insurance, policyholders have the flexibility to allocate their cash value among various investment options, such as stocks, bonds, and mutual funds. This means the cash value—and consequently, the death benefit—can fluctuate based on the performance of these investments. The potential for higher returns comes from the ability to invest in riskier assets, which can appreciate significantly over time. However, this investment risk also means that the policyholder could experience a decrease in cash value if the investments perform poorly. This dichotomy of risk and reward is what sets variable life insurance apart from other types of life insurance products. In contrast, term life insurance provides a straightforward death benefit without any cash value or investment component, while whole life insurance has guaranteed cash value growth but typically offers lower potential returns due to its conservative investment approach. Universal life insurance offers some flexibility in premium payments and cash value growth but may not provide the same level of investment risk and opportunity for high reward as variable life insurance.