Oklahoma Life Producer Practice Exam

What does a Separate Account feature in Variable Life insurance policies signify?

1. The insurer assumes all investment risks

2. The policy owner assumes the investment risk

3. All funds are invested in guaranteed assets

4. The total cash value is fixed

The correct answer is: The policy owner assumes the investment risk

The Separate Account feature in Variable Life insurance policies indicates that the policy owner assumes the investment risk. This characteristic is central to variable life insurance, as it allows policyholders to allocate their cash value to various investment options, such as stocks, bonds, or mutual funds. Because the performance of these investments can fluctuate, the policyholder's cash value and death benefit may vary based on how well the chosen investments perform. This approach contrasts with traditional life insurance policies, where the insurer typically bears the investment risk. By granting the policy owner the ability to direct their investments, these variable policies offer the potential for greater growth, but also come with the realization that losses can occur, placing the onus of risk on the policyholder. This flexibility and investment opportunity are what distinguish variable life insurance from more traditional fixed-benefit life insurance products.