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Series 7 practice questionhardPackaged Products — Variable Life Insurance

A variable life insurance policy guarantees a minimum death benefit. If the separate account performs poorly, what happens to the death benefit?

  1. AThe death benefit drops to zero
  2. BThe policy automatically converts to term insurance
  3. CThe insurance company increases premiums to maintain the death benefit
  4. DThe death benefit can never fall below the guaranteed minimum regardless of investment performance✓ Correct answer
Explanation

Why D — The death benefit can never fall below the guaranteed minimum regardless of investment performance

Variable life insurance guarantees a minimum death benefit equal to the original face amount, regardless of how poorly the separate account investments perform. The death benefit can increase above this minimum if investments perform well, but it cannot drop below the floor. The cash value, however, has no guaranteed minimum and can decline to zero if investments perform poorly.

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