South Carolina Life Insurance Practice Exam

What type of policy allows a policyholder to choose among various investment options like stocks and bonds?

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 is designed to give policyholders the ability to allocate their cash value among a variety of investment options, such as stocks and bonds. This type of policy combines a life insurance component with an investment account, and the cash value can grow based on the performance of the chosen investments. As the investments fluctuate, the cash value and potentially the death benefit can vary as well. This flexibility is appealing to those who want to participate in investment opportunities while still obtaining life insurance coverage. The policyholder typically has the opportunity to adjust their investment choices, which can provide potential for higher returns compared to more traditional policies. In contrast, term life insurance provides only death benefit coverage for a specific period without any cash value accumulation. Whole life insurance offers fixed premiums, guaranteed cash value growth, and a death benefit, but it does not allow the policyholder to choose investment options. Universal life insurance provides flexible premiums and death benefits but typically does not allow for the same level of investment choices as a variable life policy does.