How are the cash values of variable life policies calculated?

How are the cash values of variable life policies calculated?

• A. As fixed amounts outlined in the policy
• B. Based on the investment performance of underlying assets
• C. Determined by the total premiums paid
• D. Calculated using historic dividend rates only

Answer: (B)

The cash values of variable life policies are calculated based on the investment performance of the underlying assets. In variable life insurance, the policyholder has a selection of investment options, typically in mutual funds or other investment vehicles, which can fluctuate over time. The cash value accumulates as the investments perform—so if the chosen investments grow in value, the cash value of the policy increases accordingly. Conversely, if the investments perform poorly, the cash value can decrease. This relationship between cash value and investment performance distinguishes variable life policies from other types of life insurance that may have fixed cash values. Therefore, the dynamic nature of the investments directly influences the cash value, making it essential for policyholders to understand the risks and potential rewards associated with their investment choices.

The cash values of variable life policies are calculated based on the investment performance of the underlying assets. In variable life insurance, the policyholder has a selection of investment options, typically in mutual funds or other investment vehicles, which can fluctuate over time. The cash value accumulates as the investments perform—so if the chosen investments grow in value, the cash value of the policy increases accordingly. Conversely, if the investments perform poorly, the cash value can decrease.

This relationship between cash value and investment performance distinguishes variable life policies from other types of life insurance that may have fixed cash values. Therefore, the dynamic nature of the investments directly influences the cash value, making it essential for policyholders to understand the risks and potential rewards associated with their investment choices.