Insurance Commission (IC) Variable Life Licensing Practice Exam 2025 - Free Variable Life Licensing Practice Questions and Study Guide

If the cash value of a Variable Life Insurance policy is insufficient to cover the costs, the policy may lapse.

In a Variable Life Insurance policy, part of the premium payments goes towards building cash value, which can fluctuate based on the performance of the underlying investments. The insurer deducts costs, such as insurance premiums and administrative fees, from the cash value. If these costs exceed the available cash value, the policyholder may face the risk of the policy being terminated if additional premiums are not paid to cover the shortfall. This lapse means the insurance coverage would cease and the policyholder would no longer have life insurance protection in place.

The other options do not accurately describe the consequences of insufficient cash value. Premium refunds are not typical in such scenarios, borrowing against a policy is still possible until the policy lapses, and cash values do not automatically increase when costs are unmet—they depend on the investment performance and contributions made by the policyholder.