Oklahoma Life Producer Practice Exam

Who bears the investment risk in a Variable Whole Life policy?

1. The insurance company

2. The policyholder

3. The beneficiary of the policy

4. The state insurance fund

The correct answer is: The policyholder

In a Variable Whole Life policy, the investment risk is borne by the policyholder. This type of policy allows the policyholder to allocate the cash value of their insurance into various investment options, usually including mutual funds. Because these investment options can fluctuate in value based on market conditions, the policyholder's cash value and potentially their death benefit can increase or decrease. The responsibility for any gains or losses, therefore, rests with the policyholder, who must make decisions regarding investment allocations. This structure is contrasted with other types of life insurance policies, such as traditional whole life, where the insurance company typically assumes the investment risk by managing the cash value through fixed returns. The policyholder's involvement in investment choice is a key feature that differentiates variable products and emphasizes the importance of understanding market risks.