Final answer:
Variable life insurance policies provide a death benefit and have a cash value account, with the cost of this protection being an obligation of the policyholder. Their premiums must cover claims, administrative costs, and company profits. Policyholders may borrow against the cash value, creating an obligation to repay the loan with interest.
Step-by-step explanation:
The most important reason to purchase a variable life insurance policy is for the death benefit. The cost of this protection, which is an obligation of the policyholder, ensures the insurer can cover various expenses and liabilities. Premiums paid into life insurance over time cover 1) the average person's claims, 2) administrative costs of running the company, and 3) profits of the firm. Variable life insurance policies also have a cash value component, acting as an account for policyholder's use, which can be borrowed against with the obligation to repay the loan plus interest.
Insurance serves as a method to protect individuals from financial loss by enabling regular payments to an insurance entity. In return, the insurer commits to compensating any policyholder who suffers significant financial loss from an event covered by the policy. The law of insurance dictates that an insured individual's premiums must adequately fund claims, company expenses, and profit margins. The cash-value account of a variable life insurance accumulates over time and can be used by the policyholder, imposing an obligation to manage it responsibly to ensure the intended protection for beneficiaries remains intact.