South Carolina Life Insurance Practice Exam

Which of the following is a feature of variable life insurance?

1. Premiums are fixed

2. Cash value is guaranteed

3. Policy value can vary based on investment performance

4. It has no death benefit

The correct answer is: Policy value can vary based on investment performance

The feature of variable life insurance that is highlighted here involves the policy's value being subject to fluctuations based on the performance of the underlying investment options chosen by the policyholder. In variable life insurance, part of the premiums is allocated to various investment accounts, which can range from stocks to bonds. Since these investments can increase or decrease in value, the cash value and potentially the death benefit of the policy can also change over time. This characteristic allows policyholders to have some control over the growth of their cash value, as they can choose where to invest their premiums. This feature distinguishes variable life insurance from other types, such as whole life insurance, where the cash value is guaranteed and does not fluctuate with market performance. Furthermore, while premiums can be flexible in variable life policies, they are not fixed in the same manner as those in whole life policies, and there is always a guaranteed death benefit provided the policy is in force, contrary to the claim that such a policy has no death benefit.