Which type of life insurance policy has a death benefit and cash value that vary based on investment performance?

A variable life insurance policy is distinctive because it combines life insurance with an investment component. The death benefit and cash value of this type of policy are not fixed; instead, they fluctuate according to the performance of the investments chosen by the policyholder. This means that as the underlying investments increase in value, the cash value and potentially the death benefit of the policy can also increase. Conversely, if the investments perform poorly, both the cash value and the death benefit may decrease.

This variation in cash value and death benefits is what sets variable life insurance apart from whole life, universal life, and term life policies. Whole life policies offer guaranteed death benefits and predetermined cash values, while universal life also provides flexibility in premiums and death benefits but maintains more stable value growth. Term life insurance, on the other hand, is strictly a death benefit policy that does not accrue any cash value at all. Thus, the variable life insurance option is appropriate for individuals looking for a policy that ties the cash value and death benefit to the performance of investments.