Oklahoma Life Producer Practice Exam

What investment risk assumption does the policy owner have in a Variable Whole Life policy?

1. The company assumes all risks

2. The policyholder assumes the investment risk

3. Both parties share the investment risk

4. No investment risk is assumed

The correct answer is: The policyholder assumes the investment risk

In a Variable Whole Life policy, the policyholder has the investment risk because this type of policy allows them to direct the investment of the cash value into various separate accounts, which can include stock and bond funds. The performance of these investments directly affects the cash value and death benefit of the policy. As the investments can fluctuate in value, the policyholder faces the potential for both gains and losses, meaning they bear the risk associated with the investment choices they make within the policy. This characteristic is fundamental to Variable Whole Life insurance; unlike whole life policies where the insurer generally assumes the investment risk and guarantees a certain growth in cash value, in variable policies, it is the policyholder's responsibility to manage investments and accept the consequences of their performance. Therefore, individuals considering a Variable Whole Life policy need to be aware of their role in managing investment risk and the potential effects on their policy outcomes.