Texas Life Agent Practice Exam

Which characteristic is unique to variable life insurance policies?

1. Premiums are fixed for the life of the policy

2. The death benefit can vary based on investment performance

3. It does not offer a cash value component

4. It has guaranteed cash value growth

The correct answer is: The death benefit can vary based on investment performance

Variable life insurance policies are distinct in that their death benefit can change depending on the performance of the investments chosen by the policyholder. This fluctuation allows policyholders to have greater control over investment options, which can be allocated among various portfolios, such as stocks or bonds. As a result, if the investments perform well, the death benefit may increase, and conversely, if they perform poorly, the death benefit may decrease. This feature differentiates variable life from whole life or universal life policies, where death benefits are typically more stable and determined by fixed factors. Moreover, the relationship between investment performance and the death benefit in variable life insurance introduces an element of risk that policyholders need to be aware of, as it directly impacts the value of the policy over time. The other answer choices do not accurately capture the unique attributes of variable life insurance; for instance, fixed premiums and guaranteed cash value growth are characteristics more congruent with other types of life insurance.