South Carolina Insurance Practice Exam

In which type of insurance can the policyholder choose how the cash value is invested?

1. Whole life insurance

2. Term life insurance

3. Variable universal life insurance

4. Endowment insurance

The correct answer is: Variable universal life insurance

Variable universal life insurance allows the policyholder to choose how the cash value is invested. This type of insurance combines features of both whole life insurance and universal life insurance, giving policyholders the flexibility to direct investments among a variety of options, which may include stocks, bonds, or mutual funds. The cash value can fluctuate based on the performance of the investments selected. This attribute is significant as it provides the opportunity for greater growth potential compared to other life insurance products, where the cash value is typically guaranteed or has limited investment options. In contrast, whole life insurance generally has a set investment path with guaranteed cash value growth, while term life insurance does not build cash value at all. Endowment insurance also focuses on a fixed maturity date with guaranteed payouts, lacking the investment flexibility seen in variable universal life insurance.