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NEW QUESTION: 1
NEW QUESTION: 2
The subaccounts into which Mr. Sumrisk directed his variable life premiums have earned a 6% return. If
the assumed interest rate was 7%:
I. the cash value of his policy increased.
II. the death benefit associated with his policy decreased.
III. the cash value of his policy decreased.
IV. the death benefit associated with his policy increased.
A. both I and IV
B. both I and II
C. both III and IV
D. both II and III
If Mr. Sumrisk's subaccounts earned a 6% return and the assumed interest rate was 7%,
then the cash value of his policy increased, but the death benefit associated with his policy decreased.
The cash value of the policy increases when the separate account earns a positive return, regardless of
the size of that return. The death benefit, however, depends on both the return earned on the separate
account and the assumed interest rate. Since the separate account returned less, in this case, than the
assumed interest rate, the death benefit decreased.
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