Which policy has cash values tied to investment performance and carries higher risk?

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

Answer: (B)

This question is about how the cash value component of a life policy is funded and the level of risk involved. When the cash value is invested in separate accounts that track investment performance (much like mutual funds), the policy owner bears the investment risk. This setup means the cash value can grow if investments perform well, but it can also shrink if they perform poorly, and the death benefit may fluctuate accordingly. That higher potential for growth comes with increased risk and complexity.

In contrast, traditional whole life guarantees a fixed, steadily growing cash value at a set rate; universal life credits interest that can vary but isn’t tied directly to market performance; and term life has no cash value at all. Therefore, the policy with cash values tied to investment performance and higher risk is the one that funds the cash value through separate accounts and exposes the policy owner to market risk.