What distinguishes Variable Whole Life Insurance from traditional whole life?

Variable Whole Life Insurance is distinguished from traditional whole life primarily by how the investment component is structured. In Variable Whole Life, the policyholder's premiums are allocated to separate accounts that can invest in various assets, such as stocks and bonds. This allows for the potential for higher returns compared to the conservative general accounts used in traditional whole life insurance, which is typically invested in fixed income securities and is designed to provide stable, predictable growth.

The separate accounts enable policyholders to take on a greater level of risk and reward. As the value of the investments within these accounts fluctuates, the cash value and potentially the death benefit can also change. This can lead to situations where the cash value of the policy grows significantly based on the performance of the chosen investments, emphasizing the variable aspect of this insurance product.

In contrast, traditional whole life insurance has a guaranteed death benefit and cash value that grows at a steady, predefined rate set by the insurer, offering less risk and variability. This fundamental difference in investment strategy is key to understanding the unique characteristics of Variable Whole Life Insurance.