State RegulationsMI specificDifficulty 1/5
In a variable life policy, what happens to the premium dollars that are allocated to the separate account?
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
Variable products direct premiums allocated to the separate account into investments whose performance determines the policy benefits, so the benefits vary rather than remaining fixed. That variability is why Michigan regulates these products under Michigan Administrative Code R 500.830 to R 500.839 together with the securities regime, with DIFS Bulletin 09-15 providing related guidance, and why producers must explain that performance is not guaranteed.
Why the other options are wrong
- A) A declared fixed interest rate describes traditional fixed products, not variable contracts whose benefits track separate-account performance.
- B) General-account backing and insurer guarantees describe fixed products; variable benefits are not guaranteed by the general account.
- D) The Michigan Life and Health Insurance Guaranty Association protects policyholders against insurer insolvency under M.C.L. 500.7704; it does not hold or safeguard premiums.
Memory hook
Separate account, separate fortunes: variable benefits rise and fall with the market.