How do variable whole life insurance policies generally differ from traditional whole life policies?

Variable whole life insurance policies differ from traditional whole life policies primarily because they allow policyholders to make choices regarding the investment of their cash value. In a traditional whole life policy, the cash value grows at a guaranteed rate determined by the insurance company, and the policyholder has no choice regarding the investment of those funds.

In contrast, variable whole life policies provide the policyholder with the opportunity to allocate the cash value among various investment options, such as stocks, bonds, and mutual funds. This means that the growth of the cash value can potentially be higher—or lower—than what would be offered through a traditional policy, depending on the performance of the chosen investments. This characteristic of variable whole life policies makes them more flexible but also introduces investment risk, as the cash value does not have guaranteed growth like in traditional whole life insurance.

As a result, policyholders in a variable whole life insurance plan take on more control over their investments, which can lead to different financial outcomes based on market performance. This aligns with the correct answer choice, as it highlights a fundamental feature that sets variable whole life policies apart.