Series 7 Exam Question 353: Answer and Explanation

Question: 353

An investor who purchases a variable life insurance policy faces which of the following risks?

• A. The insurance company may have to increase the premium if the securities held in the separate account underperform the market.
• B. The insurance company may decrease the premium if the securities held in the separate account outperform the market.
• C. The policy may have no cash value if the securities held in the separate account perform poorly.
• D. The death benefit may fall below the minimum in the event that the securities held in the separate account underperform.

Correct Answer: C

Explanation:

C. Similar to variable annuities, variable life insurance policies have a separate account of securities. All variable life insurance (VLI) policies have a set premium and a minimum death benefit. However, if the securities held in the separate account perform well, the policy will build up cash value, which will increase the death benefit.