Final answer:
The premium during Variable Life insurance is fixed but the cash value and death benefit are not guaranteed as they depend on the performance of the invested funds. Cash-value life insurance provides both a death benefit and an accumulative cash value account. Charging an actuarially fair premium to a mixed group without accounting for varying risks could financially destabilize an insurance company.
Step-by-step explanation:
During Variable Life insurance, the premium is typically fixed, but not guaranteed in the same way as it is with traditional whole life insurance. Unlike whole life, variable life insurance allows the policyholder to invest the policy's cash value in a variety of different accounts, which can include stocks, bonds, and money market funds.
This means that while the premium itself does not change, the cash value of the policy and the death benefit can fluctuate based on the performance of the investment options chosen by the policyholder.
Cash-value life insurance does provide a death benefit and has an accumulating cash value that can serve as an account for the policyholder's use. However, the guarantees associated with the cash value and death benefit can vary significantly from those provided by whole life insurance policies.
If an insurance company tried to charge the actuarially fair premium to the group as a whole rather than to each group separately, it may face challenges.
Specifically, if the risk is not accurately assessed for each separate group (for example, those with a family history of cancer versus those without), the premium may not cover the actual cost of claims, leading to potential financial instability for the company.