Which type of insurance contract automatically adjusts benefits based on investment performance?

Prepare for the California Accident and Sickness Exam with multiple choice questions and detailed explanations. Study effectively and ace your exam!

Variable life insurance is a type of insurance contract that automatically adjusts the benefits based on the investment performance of the policy's cash value. In variable life insurance, policyholders have the flexibility to allocate their premiums among various investment options, typically including stocks, bonds, or mutual funds.

The key feature of variable life insurance is that the cash value and death benefit can vary, directly reflecting the performance of the investment options chosen by the policyholder. If the investments perform well, the cash value and death benefit may increase. Conversely, if the investments perform poorly, both the cash value and death benefit may decrease. This investment component allows for potential growth over time, making it different from other types of life insurance.

Whole life insurance offers fixed premiums and guaranteed death benefits and cash values that do not fluctuate with investment performance. Term life insurance provides coverage for a specific period and does not build cash value, thus it does not adjust based on any investment performance. Universal life insurance does allow for some flexibility in premium payments and death benefits, but its cash value growth typically depends on a declared interest rate rather than direct investment performance, making it distinct from the variable nature of variable life insurance.

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