Question 39

Investment risk borne by policyowner

Variable life insurance features an investment component where the policyowner assumes the investment risk. This means that the cash value and death benefit can fluctuate based on the performance of the underlying investments chosen by the policyowner.

A) Fixed death benefit

A fixed death benefit is not characteristic of variable life insurance, as this type of policy allows the death benefit to vary based on investment performance. Instead, policies with fixed death benefits are typically found in whole life or term life insurance.

B) Guaranteed cash value

Guaranteed cash value is not a feature of variable life insurance, which does not promise a specific cash value. Instead, the cash value in variable life insurance is subject to market fluctuations and can increase or decrease based on the investments selected.

C) Investment risk borne by policyowner

This option accurately reflects a key feature of variable life insurance. In such policies, the policyowner has the ability to choose investment options, and therefore, they bear the risk associated with those investments, which can lead to varying cash values and death benefits.

D) Premium flexibility

While variable life insurance does offer some degree of premium flexibility, it is not the defining feature associated with this product. Other types of policies might also offer premium flexibility, making this option less specific to variable life insurance compared to the investment risk aspect.

Conclusion

The correct answer, investment risk borne by policyowner, is a defining characteristic of variable life insurance, setting it apart from other types of life insurance that offer fixed benefits or guaranteed cash values. Other options fail to capture the essence of variable life insurance, as they either describe features not applicable to this type of policy or are too general to be definitive.