New York Child Abuse Identification and Reporting Practice Exam

In variable whole life insurance, what usually affects the cash value?

1. The guaranteed interest rate

2. The investment performance of selected options

3. The age of the insured

4. The total amount of loans taken against the policy

The correct answer is: The investment performance of selected options

In variable whole life insurance, the cash value is directly impacted by the investment performance of the selected options, such as stocks, bonds, or mutual funds within the policy. Insured individuals choose their investment options, which can lead to fluctuations in cash value based on market conditions. Unlike traditional whole life insurance, where cash value grows at a guaranteed interest rate, variable whole life policies allow for potentially higher returns depending on the performance of the chosen investments. The guaranteed interest rate, while relevant in other types of policies, does not contribute to the cash value growth in variable whole life insurance. Furthermore, while the age of the insured may influence premiums and overall policy performance, it does not directly affect the cash value itself. Similarly, the impact of loans taken against the policy is related but indirect, as loans can decrease the cash value available, but they do not influence how that cash value accumulates based on investment performance.