Variable whole life insurance is characterized as an investment-based product with fluctuating cash value because it combines a death benefit with an investment component. In this type of policy, the premiums paid can be allocated to various investment options, such as stocks and bonds, which can cause the cash value of the policy to change over time based on the performance of those investments. This means that, unlike traditional whole life insurance that has a guaranteed fixed cash value, the cash value in a variable whole life policy can increase or decrease, reflecting the market fluctuations of the chosen investment accounts.
Furthermore, the policyholder has the flexibility to adjust their investments, potentially increasing the cash value and the death benefit over time, which adds an element of risk and potential reward unique to variable whole life insurance. The investment aspect sets it apart from other life insurance products, as it allows policyholders to actively engage in the performance of their insurance policy's cash value.