New Jersey Life Producer Practice Exam

What type of life insurance policy has benefits that vary based on investment performance?

1. Term Life Insurance

2. Whole Life Insurance

3. Universal Life Insurance

4. Variable Life Insurance

The correct answer is: Variable Life Insurance

Variable life insurance is a type of permanent life insurance that features a cash value component which can be invested in a variety of separate accounts, similar to mutual funds. The policyholder has the ability to allocate the cash value among multiple investment options, and the death benefit as well as the cash value can fluctuate based on the performance of those investments. This variability allows policyholders the potential for significant gains but also means they must accept the risk of potential losses. In contrast, term life insurance provides a fixed death benefit for a specified period and does not accumulate cash value, making it unrelated to investment performance. Whole life insurance offers guaranteed death benefits and cash value growth, but this growth is typically more stable and conservative, not contingent on market performance. Universal life insurance does offer flexible premiums and cash value growth, but its growth is typically associated with interest rates, not performance of separate investment accounts. Variable life insurance stands out specifically for its connection to investment performance in determining both cash value and death benefits.