Tennessee Insurance Practice Exam

Which statement is TRUE regarding a Variable Whole Life policy?

1. No death benefit is guaranteed

2. A minimum guaranteed death benefit is provided

3. It cannot accumulate cash value

4. It is less flexible than fixed whole life policies

The correct answer is: A minimum guaranteed death benefit is provided

A Variable Whole Life policy is designed to offer both a death benefit and the potential for cash value accumulation that can vary based on investment performance. One of the key features of this type of insurance is that it comes with a minimum guaranteed death benefit. This means that policyholders can expect to receive at least a specified amount upon the insured's death, regardless of the fluctuations in the market or the performance of the investments linked to the policy. While the cash value component can increase based on the performance of the selected investments, the guaranteed death benefit provides a safety net for policyholders, ensuring that their beneficiaries will receive a minimum payout even if the investments do not perform well. In contrast, statements about the absence of a guaranteed death benefit, the inability to accumulate cash value, and the comparison of flexibility with fixed whole life policies do not accurately reflect how Variable Whole Life policies function. These policies are inherently designed to provide both a degree of investment potential and a guaranteed aspect in terms of the death benefit.