Which type of life insurance offers a death benefit and allows the holder to build cash value similar to mutual funds?

Variable universal life insurance is the correct choice because it combines the features of both permanent life insurance and investment. With this type, policyholders are not only provided with a death benefit but also have the opportunity to build cash value, which can be invested in various options similar to mutual funds. The cash value component allows for significant flexibility, as policyholders can choose how their investments are allocated—among stocks, bonds, and money market funds—thus allowing for potential growth based on market performance.

Additionally, variable universal life insurance offers flexibility in terms of premium payments and the ability to adjust the death benefit. This means that as the cash value grows, it can offer a financial resource in retirement or for other needs. The investment component is what distinguishes it from other life insurance options, as it allows for potential higher returns but also comes with investment risk.

In contrast, term insurance solely provides a death benefit without any cash value component, while whole life insurance offers a guaranteed cash value growth but with less investment flexibility. Universal life insurance provides flexible premiums and a cash value component but does not have the investment variability found in variable universal life insurance.