Life License Qualification Program (LLQP) Practice Exam

How does a Variable Life Policy typically grow its investment component?

1. Tied to price of gold

2. Through mutual funds, stocks, bonds

3. Based on returns from the insurer's general account

4. Tied to Treasury Bills

The correct answer is: Through mutual funds, stocks, bonds

A Variable Life Policy typically allows the policyholder to allocate a portion of their premiums to various investment options, such as mutual funds, stocks, and bonds. This investment flexibility is one of the distinguishing features of a Variable Life Policy. The growth of the investment component is based on the performance of the chosen investment vehicles, which can provide the potential for higher returns compared to traditional whole life policies. This ties the policy’s cash value and death benefit to the success of the underlying investments, allowing for both growth and risk based on market conditions. The options relating to price of gold, the insurer's general account, and Treasury Bills don't align with how a Variable Life Policy functions. Instead, those choices generally relate to other types of investment strategies or insurance products that do not offer the same adaptability and growth opportunities as those linked directly to mutual funds, stocks, and bonds. Thus, the investment component of a Variable Life Policy is specifically structured to be dynamic and tied to market-based instruments, making the option focused on mutual funds, stocks, and bonds the correct answer.