Final answer:
Variable life insurance has level fixed premiums that do not change, regardless of the performance of the cash value account. The cash value can fluctuate based on investment outcomes, but the premiums remain constant to cover claims, costs, and profits over time.
Step-by-step explanation:
Variable life insurance policies typically have level fixed premiums. Unlike other life insurance products, where the premiums might increase or decrease over time, variable life insurance is designed to have a fixed premium that does not change. The cash value component of a variable life insurance policy can go up or down based on the performance of the chosen investment options, but this does not affect the premium amount, which remains consistent.
Cash-value (whole) life insurance includes a death benefit and a cash value account which can be used by the policyholder. This cash value accumulates over time and is influenced by the insurance company's investment performance, but again, is independent of the premium payments, which are level fixed.
The concept of an actuarially fair premium suggests that over time, the premiums collected must cover the claims paid, the administrative costs of the insurance company, and allow for profit. In theory, a variable life insurance policy's premiums are calculated to cover these expenses while also providing the policyholder with potential cash value growth through investments.