State RegulationsMI specificDifficulty 2/5
A policyowner in Ann Arbor asks how the separate account in her variable life policy works. Which explanation is correct?
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
Michigan's variable-product framework, Michigan Administrative Code R 500.830 through R 500.839, presumes the defining structure of a variable product: premiums allocated to a separate account whose assets are segregated from the insurer's general account, with cash values and benefits fluctuating with that account's investment performance. The policyowner bears investment risk, which is why these products also carry securities-law obligations alongside the Michigan Insurance Code.
Why the other options are wrong
- A) Fixed cash value contradicts the variable design; variability with separate-account performance is the product's core feature.
- B) Segregation from the general account is the point of the separate account; commingling would misdescribe the structure.
- D) The death benefit in variable life varies with the separate account, subject to any guaranteed minimum the contract provides.
Memory hook
Separate account = separate pot, performance flows through.