The following statements are about variable life insurance. Select the answer choice containing the correct statement....

The following statements are about variable life insurance. Select the answer choice containing the correct statement.

The insurance company alone assumes the investment risk for variable life insurance policies.

Variable life insurance policies offer policyowners guaranteed investment earnings and minimum cash values.

Assets representing policy reserves of variable life insurance policies are placed in investment accounts that are kept separate from the insurance company’s general investment account.

The death benefit provided by a variable life insurance policy remains constant throughout the life of the policy.

Solutions

Expert Solution

The correct answer choice is that Assets representing policy reserves of variable life insurance policies are placed in investment accounts that are kept separate from the insurance company's general investment account.

Under variable life insurance, policy owner can invest in one of the specific sub accounts. The returns of this account are dependent on various investment plans in which its money is invested. This sub account acts like a mutual fund investing money in various investment plans available in the market. Since the risk return profile of these sub accounts are specifically suited to investors having more risk appetite (that is why they took the variable insurance policy) their accounts are kept separate from the insurance company's general investment account.

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