What type of insurance policy allows the cash value to grow based on the performance of investment accounts?

Variable life insurance is designed to provide both a death benefit and a cash value component that can grow based on the performance of various investment accounts, which are usually chosen by the policyholder. The cash value in variable life insurance is not fixed; instead, it fluctuates with the performance of the investments that the policyholder selects, such as stocks, bonds, or mutual funds. This feature offers the potential for higher returns compared to traditional whole life or universal life insurance, which typically have more conservative cash value growth rates. The investment risk is borne by the policyholder, meaning they benefit from increased cash value if the investments perform well, but may also see reductions in cash value if the investments perform poorly.

In contrast, whole life insurance provides a guaranteed cash value growth at a predetermined rate and does not fluctuate based on investment performance. Universal life insurance offers flexible premiums and death benefits but still typically features a more stable accumulation of cash value, often linked to a minimum interest rate instead of market performance. Term life insurance does not build cash value at all; it solely provides a death benefit for a specified time period. Thus, the defining characteristic of variable life insurance is its direct connection between investment performance and cash value growth.