Hi there - in section 14.5 of the textbook, it states the following in the summary of variable life insurance main test points:
Coverage for the entire life of the policyholder
Fixed premiums
Guaranteed minimum death benefit
No minimum guaranteed cash value
Cash value invested in a separate account
Cash value grows based on investment performance
Policyholder is subject to investment risk
Cash value may be
Withdrawn or borrowed
Returned to the insurance company upon death
Kept upon surrender of the policy
Retained and potentially paid with a death benefit
Considered a security
I’ve bolded the confusing part above. Why would I ever agree to a life insurance policy where the cash value goes back to the insurance company when I die? That is my cash value that I’ve built up over the years - it is mine to pass on to beneficiaries.
Is this a typo in the summary? Should it say “Returned to the policyholder (beneficiary) upon death”?
In a variable life insurance policy, the policyholder and the insured person (often the same individual) have access to the cash value only during the insured person’s lifetime. This cash value is a living benefit: it can be borrowed, withdrawn, or surrendered while the insured is alive. That’s why the textbook states:
“The policyholder may only access the cash value during the insured person’s lifetime.”
Once the insured person dies, the purpose of the policy changes; the contract shifts from providing living benefits to paying the death benefit to the beneficiaries. At that point, the cash value is no longer available because it’s part of the internal funds the insurance company uses to fulfill the death benefit obligation.
So, the summary line “Returned to the insurance company upon death” isn’t a typo; it’s describing that once the insured dies, the living benefit portion (the cash value) ceases to exist for the policyholder and is absorbed by the insurer as part of fulfilling the policy’s contractual promise.
Please let us know if there’s anything else we can do to support you as you study.