A 50-year-old applicant purchases an individual variable life insurance policy and returns it to the insurer during the free-look (cancellation) period. Under California Insurance Code Section 10127.9, what must the insurer refund?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Under California Insurance Code Section 10127.9, when a policyowner cancels within the free-look period, the parties are restored to the position they would have been in had no policy been issued. For nonvariable life insurance policies and nonvariable annuities, the insurer refunds all premiums paid plus any policy fee within 30 days. For individual variable life insurance policies and variable annuities, the insurer instead refunds the account value and any policy fee paid, also within 30 days of cancellation notice, because those products' cash value reflects separate-account investment performance rather than a premium-only basis.
Why the other options are wrong
- B) Premiums plus accrued interest is not the statutory refund basis for variable policies. Under Section 10127.9 the refund for variable contracts is the account value, which reflects the performance of the separate account.
- C) The insurer never refunds the face amount of the policy. The face amount is the death benefit payable upon the insured’s death, not an amount returned when a policy is canceled during the free-look period.
- D) The policy fee is refunded in addition to the account value, and the premiums are not retained by the insurer. A full refund of the variable product’s value is required within 30 days of the cancellation notice.
Memory hook
Variable free look = refund the account value, not the premiums. Variable products return their investment-driven worth.