Variable Life Insurance Part 2

Rule 6E-2 defines variable life insurance as a policy in which the insurance element is predominant, and the cash values are funded by the separate account of the life insurance company. The "separate account" is an account separate from the general account of the insurance company and not subject to the claims of the creditors of the insurance company. The separate account contains sub-accounts that are similar to mutual funds. Death benefits and cash values vary to reflect investment experience of the policy owner-chosen sub-accounts.

The policy also must provide a minimum death benefit guarantee, and mortality and expense risks must be borne by the insurance company. The basic policy structure is similar to whole life insurance in that the stated face amount at a stated age requires a specific, level, fixed-premium payment. Once the policy is issued, the cash value of the contract increases or decreases daily depending on the investment results of the underlying investment funds. There is no guaranteed minimum below which that fund cannot fall.

Fixed-premium variable life contracts do guarantee that the face amount will not go below the originally issued face amount, regardless of investment experience, and that only the guaranteed level premium will be required to keep the policy in force. If investment experience is positive, on the anniversary date of the policy, the face amount of the contract is adjusted upward, reflecting that investment experience. If negative, the death benefit will be adjusted downward, but never below the face amount of the original contract. The original variable life policies had only a money-market account and a common stock account available for investment.