Texas Life Agent Practice Exam

A life insurance policy whose cash value will fluctuate depending upon the performance of a separate account is?

1. Universal life

2. Whole life

3. Variable life

4. Term life

The correct answer is: Variable life

A life insurance policy where the cash value fluctuates based on the performance of a separate account is known as variable life insurance. This type of policy combines life insurance protection with an investment component, allowing policyholders to allocate their premiums to a variety of investment options within the separate account, such as stocks, bonds, or mutual funds. The cash value is not guaranteed and can increase or decrease depending on the performance of the chosen investments, thus providing a level of flexibility and potential growth. In contrast, whole life insurance offers a guaranteed cash value that grows at a predetermined rate, and universal life insurance offers flexible premiums and adjustable death benefits but generally has a less volatile cash value component. Term life insurance does not build cash value at all; it provides coverage for a specific term without any investment component. Therefore, the distinctive feature of variable life insurance is its linkage to the performance of investments, which is what makes it the correct answer to this question.