Variable Life Licensing Practice Exam

Variable Life Insurance (VLI) has inherent risks associated with its investment component, which makes the option regarding investment performance leading to a decrease in cash value accurate. In a Variable Life Insurance policy, the cash value is tied to the performance of various investment options selected by the policyholder. If the selected investments perform poorly, the cash value can decline, potentially impacting the policy's overall value and the death benefit. This direct link between investment performance and cash value means that policyholders bear the investment risk, making their financial outcomes uncertain.

The other options present characteristics of Variable Life Insurance that do not reflect risks. For instance, the idea that cash value can be guaranteed to grow is misleading. In VLI, while there may be a growth potential due to investments, there is no guarantee, which contrasts with traditional whole life policies. Fixed contributions are not a requirement; policyholders can adjust the amount they pay into the policy, adding flexibility that differs from some other life insurance products. Lastly, policyholders do have the ability to modify their investment choices, allowing them to adjust their strategy based on market conditions and personal financial goals, which is a key feature of Variable Life Insurance.