Final answer:
Variable life insurance policyholders must receive information about their policy's death benefit and cash value. Premiums paid by policyholders cover the costs of claims, company costs, and profits. Moral hazard is an important concept in understanding the behavior of insured parties.
Step-by-step explanation:
The holder of a variable life insurance policy must be provided with detailed information about their policy, which includes both a guaranteed death benefit and an account with a cash value. This cash value is accumulated over time and can be used by the policyholder for various purposes. Life insurance companies provide this coverage as a way to protect individuals from financial loss. Policyholders make regular payments, or premiums, to the insurance company. These premiums must be sufficient to cover the cost of claims, the administrative costs of running the company, and to leave room for the company's profits. A key consideration in life insurance is the concept of moral hazard, where the insured party may take more risks because they have coverage.
In variable life insurance, policyholders receive comprehensive details about their coverage, encompassing both a guaranteed death benefit and a cash value account. This cash value, accruing over time, offers versatility for various financial needs. Premiums, essential for covering claims, administrative expenses, and ensuring company profits, underscore the concept of moral hazard, where insured parties may take increased risks due to their coverage.