Which type of life policy has a death benefit that can fluctuate according to the performance of its underlying investment portfolio?

• A. Term life policy
• B. Variable life policy
• C. Whole life policy
• D. Universal life policy

Answer: (B)

Variable life insurance is designed so the death benefit can rise or fall based on how the policy’s underlying investment accounts perform. In this type, part of the premium goes into separate investment accounts chosen by the policyowner, and the cash value—and often the death benefit—fluctuate with those investments. If the investments do well, the death benefit can increase; if they perform poorly, it can decrease. This differentiates it from term life (fixed death benefit for a set term), whole life (guaranteed, fixed death benefit with a conservative cash value), and universal life (flexible premiums with a cash value that earns interest and a death benefit that is typically fixed or adjustable, not tied to market performance).