Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A policyowner purchases a variable life insurance policy funded through a separate account. Which party assumes the investment risk on the premiums placed in the separate account?
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
In variable life insurance, premiums are invested in a separate account made up of securities such as mutual funds, and the policyowner assumes the investment risk. The cash value and, subject to a guaranteed minimum, the death benefit fluctuate with the performance of those underlying investments. The insurer provides the policy mechanics and guarantees only minimum amounts; it does not guarantee a return on the separate account. Licensing and securities registration issues are addressed under objective LIFE-II.B.2.
Why the other options are wrong
- B) The insurer does not guarantee a return on separate account funds; investment risk sits with the policyowner, not the insurer.
- C) No federal agency guarantees variable life cash values or returns; these are securities, not federally insured deposits.
- D) The agent recommends subaccounts but does not bear the investment risk or guarantee performance.
Memory hook
Variable life = variable risk. The policyowner rides the market; the insurer just runs the machine.