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A variable life insurance policy has a minimum death benefit plus an additional death benefit, which may vary in amount according to the investment performance of the separate account. The performance of the separate account may increase or decrease the policy's death benefit, but the policy's death benefit may never fall below the minimum guaranteed death benefit. When a variable life insurance policy is issued, the insurance company sets an assumed interest rate (AIR) that is used to calculate the amount of the policy's variable death benefit. If the separate account outperforms the AIR, the variable death benefit will increase. However, if the separate account underperforms the AIR for several months, the separate account will have to outperform the AIR by enough to offset any past poor performance before the death benefit may increase. Calculation of the variable death benefit must be made at least annually. The value of the separate account must be made daily, much like a mutual fund, and the policyholder's cash value must be calculated at least monthly. It is important to note that the AIR has nothing to do with the cash value of the policy; it only concerns itself with the variable death benefit. As long as the performance of the separate account is positive, the cash value will increase.


All variable life insurance policies must offer policyholders the following:

• 45-day free-look period

• Ability to borrow against cash value

• Contract exchange privileges

• Voting rights


A variable life insurance policyholder must be given an opportunity to review the policy and may cancel the contract within the first 45 days, or 10 days from the receiving of the policy, whichever is longer. Any policyholder who cancels a contract under the free-look provision is entitled to receive a refund of all premiums paid.


All variable life insurance policyholders must be allowed to borrow against their policy's cash value. At least 75% of the policy's cash value must be made available to the policyholder in the form of a loan. Interest must be charged on the loan; otherwise it is taxed as a withdrawal. Should the separate account experience a drop in value while the loan is outstanding, causing the policyholder's cash value to fall into a negative balance, the policyholder has 31 days to repay enough of the loan to restore a positive cash value or the policy may be canceled. Should the death benefit become payable while a loan is outstanding, the death benefit will be reduced by the amount of the loan.


All variable life policyholders must be given the opportunity to exchange their variable life insurance policy for a whole life policy for at least 24 months, as required by federal law. The new whole life policy will have a death benefit that is equal to the minimum guaranteed death benefit of the variable life policy, and the contract's date of issuance will remain the same. The insurance company may not ask a policyholder who exchanges a variable life policy for a whole life policy to take another physical. When a policyholder exchanges one life insurance policy for another it is done with out any tax consequences and is referred to as a 1035 exchange.


Variable life policyholders must be given the right to vote on the major issues concerning the separate account, such as:

• Election of the investment adviser.

• Change in investment objectives.

Policyholders will receive one vote for every $100 in cash value and will receive fractional votes for fractional amounts of $100 of cash value.

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