What is a primary characteristic of whole life insurance?

Whole life insurance is designed to provide both a death benefit and accumulate cash value over time. A primary characteristic of this type of insurance is that it builds cash value on a tax-deferred basis, which means that the cash value grows without being subject to income tax until it is withdrawn or the policy is surrendered. The growth typically occurs at a fixed interest rate set by the insurance company, providing policyholders with a stable and predictable savings component within the insurance contract.

In contrast, other options either misrepresent the nature of whole life insurance or pertain to different insurance products. For instance, variable premium structures are more characteristic of term life insurance or certain types of universal life policies, which can fluctuate from year to year. Furthermore, the option suggesting that whole life insurance only provides a death benefit is inaccurate, as it fails to acknowledge the cash accumulation feature. Lastly, the claim of guaranteed high returns through variable investments refers to variable life insurance rather than whole life, which does not involve investment diversity but rather a fixed growth rate for the cash value.