In a variable life policy, the cash values are maintained where, and who bears the investment risk?

In a variable life policy, the cash values are maintained where, and who bears the investment risk?

• A. The cash values are guaranteed by the insurer.
• B. The cash values are maintained in a separate account and investment risk is borne by the owner.
• C. The separate account is funded solely by the insurer's profits.
• D. Fees in the separate account are fixed and never change.

Answer: (B)

In a variable life policy, the cash value sits in a separate account from the insurer’s general account, and the policy owner controls how that money is invested through subaccounts. The key point is that the investment results determine the cash value, so there is no guarantee of the cash value from the insurer—the owner bears the investment risk. The insurer may guarantee a minimum death benefit, but the cash value can go up or down with market performance. That’s why this option is the best: cash values are kept in the separate account and investment risk is borne by the owner. The other ideas aren’t accurate because the cash value isn’t guaranteed by the insurer, the separate account isn’t funded solely by the insurer’s profits, and fees can vary rather than stay fixed forever.

In a variable life policy, the cash value sits in a separate account from the insurer’s general account, and the policy owner controls how that money is invested through subaccounts. The key point is that the investment results determine the cash value, so there is no guarantee of the cash value from the insurer—the owner bears the investment risk. The insurer may guarantee a minimum death benefit, but the cash value can go up or down with market performance. That’s why this option is the best: cash values are kept in the separate account and investment risk is borne by the owner. The other ideas aren’t accurate because the cash value isn’t guaranteed by the insurer, the separate account isn’t funded solely by the insurer’s profits, and fees can vary rather than stay fixed forever.