Minnesota Life Insurance License Practice Exam

Which life insurance policy's cash value depends on stock market performance?

1. Whole life policy

2. Universal life policy

3. Variable life policy

4. Term life policy

The correct answer is: Variable life policy

The cash value of a variable life policy is directly tied to the performance of the underlying investments, which typically include stock and bond sub-accounts. This means that policyholders can allocate their cash value among various investment options, allowing for the potential for growth based on market performance. Unlike whole life and universal life policies, which have more predictable cash values based on the insurer's general account performance, variable life policies can fluctuate significantly in value, depending on how well the chosen investments perform. This characteristic allows policyholders to potentially grow their cash value at a rate that corresponds to market conditions, offering an appealing option for those who are comfortable with investment risk.