South Carolina Life Insurance Practice Exam

Which of the following life insurance policies allows for premiums to vary based on the performance of investment accounts?

1. Whole Life

2. Universal Life

3. Term Life

4. Variable Life

The correct answer is: Variable Life

The correct answer is that Variable Life insurance policies allow for premiums to vary based on the performance of investment accounts. With a Variable Life policy, the policyholder has the opportunity to allocate the cash value among various investment options, such as stocks and bonds, within the policy. This means that the value of the policy can fluctuate based on the success of those investments. As the investment component performs well, the cash value of the policy increases, which may allow the policyholder to reduce premium payments or take loans from the cash value. Conversely, if the investments perform poorly, the cash value may decrease, impacting future premium payments and potentially the death benefit. In contrast, Whole Life policies have fixed premiums that do not vary, providing a guaranteed benefit and cash value accumulation over time. Universal Life offers flexible premiums, but they are not directly tied to the performance of investment accounts in the same way as Variable Life. Term Life insurance provides coverage for a specified term with fixed premiums but does not build cash value or allow for premium variation based on investment performance. Thus, the unique feature of Variable Life policies is the link between performance of investment accounts and the variability of premiums and death benefits, making them distinct from the other types of life insurance mentioned.