What type of policy allows variation in premiums and sum insured with cash values dependent on investment performance?

Universal life insurance is designed to provide flexibility in premium payments, death benefits, and investment options. One of the defining features of universal life policies is their ability to adjust both the premiums and the amount of insurance coverage based on the insured's needs and financial goals.

As the policyholder pays premiums, the insurer allocates part of those payments to a cash value component, which can be invested in various investment vehicles, such as bonds or stocks. The cash value grows based on the performance of these investments, allowing the policyholder to see fluctuations in the cash value depending on the investment results. This makes universal life insurance distinct from more traditional policies, which typically offer fixed premiums and benefits. Additionally, universal life policies can offer the policyholder the option to increase or decrease the death benefit as their financial circumstances change, adding further flexibility.

This adaptability to the policyholder's financial situation and investment performance is why universal life is the correct answer to this question.