Final answer:
Premium tax on a variable insurance product is usually deducted from the policyholder's premium payments. This can affect the policy's value but allows the state to fund services. Regulations may lead to insurers exiting the market.
Step-by-step explanation:
When selling a variable insurance product in a state that imposes a premium tax, the tax is typically deducted from the premium payments before the funds are allocated to the cash value or other investment components of the policy. This can lead to a lower value for the policyholder but ensures that the state can fund essential services like road repair and education.
Insurance regulators may set rules to keep premiums low, but such regulations can discourage insurance companies from serving high-risk individuals, potentially leading to companies withdrawing from the market, such as the case with State Farm in Florida in 2009.