Rhode Island Life Insurance Practice Exam

S owns a life insurance policy with cash values that fluctuate based on the underlying investment performance of common stocks. What type of policy does S own?

1. Fixed Whole Life

2. Variable Whole Life

3. Universal Life

4. Term Life

The correct answer is: Variable Whole Life

S owns a Variable Whole Life policy, which is characterized by its cash value that can increase or decrease depending on the performance of the investments chosen by the policyholder, typically linked to common stocks or other securities. This type of policy combines elements of both whole life insurance and investment opportunities, allowing the policyholder to participate in the performance of the underlying investments while also providing a death benefit. In a Variable Whole Life policy, the cash value can fluctuate, which means it can potentially provide higher returns than fixed policies that have guaranteed cash values. However, this also means there is more risk involved, as poor investment performance can lead to lower cash values. The flexibility in investment choices is a key feature of Variable Whole Life, distinguishing it clearly from other types of life insurance policies, such as fixed whole life, universal life, or term life.