State RegulationsPA specificDifficulty 3/5
A client asks why a variable life policy's cash value and death benefit fluctuate while a fixed-dollar policy's do not. The correct explanation under 40 P.S. § 506.2 and 31 Pa. Code Ch. 82 is that:
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
Under 40 P.S. § 506.2 and the separate-account rules of 31 Pa. Code Ch. 82, a variable life policy's benefits are tied to the investment performance of the separate account. The insurer guarantees only the fixed-dollar products it funds from the general account; for variable products, investment results pass through to the policyowner, who therefore assumes the market risk. That allocation of risk — insurer for fixed, policyowner for variable — is the essence of the distinction the client is asking about.
Why the other options are wrong
- A) Separate accounts are not dumping grounds for the insurer's fixed-product losses; they hold the variable policyowners' own invested premiums.
- B) The Pennsylvania Insurance Department regulates the accounts but never sets or resets market-based policy values.
- C) The risk flow is the reverse: the general account supports fixed-dollar guarantees, while separate-account results drive variable values.
Memory hook
Fixed = insurer's risk; variable = yours — the separate account makes it so.