How are the protection costs typically met under variable life insurance policies?

Variable life insurance policies incorporate multiple mechanisms for covering protection costs associated with the insurance component of the policy.

One method is through flat initial charges that are applied in regular premium plans. These charges are deducted from the premiums paid and help to cover mortality and administrative costs right at the outset.

Another approach involves the cancellation of units in the fund. Since variable life policies have an investment component where the premiums are allocated to various investment options, if the costs surpass the premiums paid, the insurer may cancel a portion of the units to cover these costs. This ensures that the policy remains sustainable while allowing for the flexibility of the investment component.

Furthermore, the policy may include explicit charges outlined in the policy terms. This provides transparency regarding how much will be deducted for different costs, including mortality charges and administrative fees, ensuring policyholders are fully aware of the financial implications.

The combination of these strategies—initial charges, unit cancellations, and clearly stated charges—allows for a comprehensive approach to managing the protection costs within variable life insurance policies. Each method plays a complementary role, thus supporting the overall functionality and financial viability of the policy.