What defines a variable life policy and how are the cash value and death benefit determined?

What defines a variable life policy and how are the cash value and death benefit determined?

• A. Cash value is fixed and guaranteed; death benefit is fixed.
• B. In variable life, cash value and sometimes death benefit depend on the performance of separate accounts chosen by the policyowner; investment risk is borne by the owner.
• C. Cash value is determined by insurer's general account; death benefit is determined by premium.
• D. It has no death benefit.

Answer: (B)

Variable life centers on investing the cash value in separate accounts chosen by the policyowner. The cash value isn’t guaranteed fixed; it rises or falls with how those accounts perform, and the policyowner bears the investment risk. The death benefit isn’t necessarily fixed either and can vary with investment results (though some contracts may guarantee a minimum amount). This is why the statement that best fits describes cash value and death benefit as dependent on the performance of separate accounts chosen by the policyowner, with the owner assuming the investment risk. The other descriptions imply fixed guarantees, use of the insurer’s general account, or no death benefit, which doesn’t align with how variable life works.

Variable life centers on investing the cash value in separate accounts chosen by the policyowner. The cash value isn’t guaranteed fixed; it rises or falls with how those accounts perform, and the policyowner bears the investment risk. The death benefit isn’t necessarily fixed either and can vary with investment results (though some contracts may guarantee a minimum amount). This is why the statement that best fits describes cash value and death benefit as dependent on the performance of separate accounts chosen by the policyowner, with the owner assuming the investment risk. The other descriptions imply fixed guarantees, use of the insurer’s general account, or no death benefit, which doesn’t align with how variable life works.