New Jersey Life Producer Practice Exam

Which of the following describes a Variable Life Insurance policy?

1. The death benefit remains fixed

2. The policyholder can choose the investment portfolio

3. The premiums are not flexible

4. The policy offers guaranteed cash value

The correct answer is: The policyholder can choose the investment portfolio

A Variable Life Insurance policy is characterized primarily by the policyholder's ability to choose the investment portfolio in which the cash value of the policy will be invested. This kind of flexibility allows policyholders to select from a variety of options, which can include stocks, bonds, and mutual funds. The performance of these investments directly affects the cash value and, potentially, the death benefit of the policy. The ability to customize the investment choices is a key feature that distinguishes Variable Life Insurance from other types of permanent life insurance, where the investment component is more fixed or guaranteed. This design means that the policyholder assumes a greater degree of risk and can capitalize on potential market growth, making their investment choice a significant factor in the overall performance of their policy. The other features mentioned, such as a fixed death benefit, non-flexible premiums, and guaranteed cash value, are not characteristics of Variable Life Insurance. In this policy, both the cash value and death benefit can fluctuate based on the performance of the chosen investments, rather than being guaranteed or fixed.