Applying AIR to variable life affects which component?

Applying AIR to variable life affects which component?

• A. The cash value only
• B. The death benefit only
• C. Both the cash value and the death benefit
• D. The death benefit but not the cash value

Answer: (D)

In variable life, the cash value comes from the actual performance of the policy’s separate accounts, so it reflects realized investment returns and any withdrawals or loans. The AIR (assumed interest rate or illustration rate) is a calculation device used to determine guarantees or how benefits are projected, not the actual credited performance of the investments. Because AIR is a planning figure used for guarantees or death-benefit calculations, applying it can change the death benefit amount to preserve those guarantees or reflect the assumed scenario, while the cash value remains driven by the real investment results. So the death benefit can be adjusted by AIR, but the cash value stays tied to the actual credited value from the separate accounts.

In variable life, the cash value comes from the actual performance of the policy’s separate accounts, so it reflects realized investment returns and any withdrawals or loans. The AIR (assumed interest rate or illustration rate) is a calculation device used to determine guarantees or how benefits are projected, not the actual credited performance of the investments. Because AIR is a planning figure used for guarantees or death-benefit calculations, applying it can change the death benefit amount to preserve those guarantees or reflect the assumed scenario, while the cash value remains driven by the real investment results. So the death benefit can be adjusted by AIR, but the cash value stays tied to the actual credited value from the separate accounts.