Final answer:
The correct answer to why a Universal Life policy is called an unbundled life policy is D) Cost of insurance, which is one of the components the policy owner can see. Universal Life insurance also shows interest earned and expense charges alongside providing a death benefit and cash value. Actuarially fair premiums vary based on individual or group risk factors.
Step-by-step explanation:
A Universal Life policy is often referred to as an unbundled life policy because it allows the policy owner to see the various components of the policy separately, which includes interest earned, expense charges, and the cost of insurance. The correct answer to the question is D) Cost of insurance. Universal Life insurance is a type of cash-value (whole) life insurance that not only provides a death benefit but also accumulates cash value, an account which the policyholder can use during their lifetime.
Actuarially fair premiums are calculated based on risk factors, including a person's health and family medical history. If an insurance company were to sell life insurance separately to groups with and without a family history of cancer, the premiums for each group would differ to reflect the varying levels of risk. However, if the insurance company could not differentiate based on family cancer history, they would need to calculate a single premium for the entire group, which would likely be higher than the premium for the lower-risk group but lower than the premium for the higher-risk group. This aligns with a fundamental law of insurance, which states that the average person's payments into insurance must cover their claims, the costs of running the company, and allow for the firm's profits.