Final answer:
The incorrect statement about a variable life policy is that it includes a flexible premium; traditional variable life policies typically have a fixed premium. The correct characteristics are that it provides a minimum guaranteed death benefit, has a death benefit dependent on investment performance, and invests cash values in a separate account.
Step-by-step explanation:
A variable life policy is a type of life insurance that has an investment component. The cash values of the policy are invested in various securities, such as stocks, bonds, or mutual funds, and the death benefit can vary depending on the performance of these investments. However, one of the statements provided about variable life insurance is not true. The incorrect statement is: A. Variable life includes a flexible premium. While it might be easy to confuse variable life policies with variable universal life policies, traditional variable life policies generally do not have the flexible premium feature. The hallmark of variable life insurance is the ability to invest the policy's cash value. On the other hand, the premium is usually fixed once the policy is issued.
The correct statements regarding variable life insurance include:
- B. Variable life provides a guaranteed minimum death benefit: This type of policy assures a minimum death benefit regardless of the performance of the underlying investment options.
- C. The amount of the variable life death benefit is dependent upon the performance of securities: The policy's death benefit may increase if the investments perform well, but it will not fall below a specified minimum.
- D. Variable life cash values are deposited in a separate account: The cash values are indeed separated from the general funds of the insurance company and are invested in a variety of instruments, similar to a mutual fund.
Understanding the distinct characteristics of variable life policies can help individuals make informed decisions about their life insurance and investment strategies, balancing the need for a death benefit with the desire for potential growth through investments.