All of the following statements about variable life insurance are true EXCEPT:

a. Variable life insurance combines life insurance with a mutual fund.

b. Variable life insurance provides a minimum guaranteed rate of return, but the actual return can be higher if investment experience is favorable.

c. Variable life insurance allows the policyowner to select where the cash value is invested.

d. Variable life insurance has fixed premium payments.

e. Variable life insurance policies include settlement options.

Solutions

Expert Solution

A. Variable life insurance combines life insurance with a mutual fund. (TRUE) - Depends on the nature of Variable insurance investment can be in mutual funds of Index funds/sectorial funds etc.

B. Variable life insurance provides a minimum guaranteed rate of return, but the actual return can be higher if investment experience is favorable. ( NOT TRUE) All variable life insurance does not come with a minimum guaranteed return. Specifically, those insurance policy investments made on risky/volatile asset classes return can be negative also.

C. Variable life insurance allows the policy owner to select where the cash value is invested. (TRUE) Depends on risk profiling of client insurance agents guides the client on where the cash value should be invested.

D. Variable life insurance has fixed premium payments. (TRUE) The policyholder has to pay a minimum premium on a predecided period like yearly/quarterly/monthly. If initial cash payment is very large then they can skip premium. But actually future premiums are discounted on the present value of cash flow only.

E. Variable life insurance policies include settlement options. (TRUE) Yes, these policies are customized with different settlement options.

Ans : Option B

jeff jeffy answered 1 year ago

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