In a variable policy, the death benefit and cash value are based on what?

In a variable policy, both the death benefit and cash value are tied to a distinct pool of investments, typically consisting of mutual funds or similar investment vehicles. This means that the policyholder has the opportunity to allocate their premiums among various investment options, which can include stocks, bonds, or money market instruments. The performance of these investments directly affects the cash value of the policy and, in many cases, the death benefit as well.

The inherent flexibility allows policyholders to potentially grow their cash value based on the market performance of their chosen investments. Unlike traditional life insurance policies, which have guaranteed returns and fixed death benefits, variable policies carry a degree of risk, as the values can fluctuate based on the market conditions and the performance of the investment choices made.

This structure distinguishes variable policies from other options, which focus on fixed interest rates or specific types of investments like corporate bonds or real estate. In those cases, the benefits would not be influenced by a range of investment choices available to the policyholder, leading to less potential variability and growth than that found in variable insurance products.