Which statement is TRUE about the policy value of variable life policies?

The statement that the life company maintains a separate account for variable life policies distinct from the general account is true. This is a fundamental characteristic of variable life insurance. The separate account is where the premiums paid for the variable life policy are allocated to a variety of investment options, such as stocks, bonds, or mutual funds. This separation allows for the investment performance of these options to directly impact the cash value of the policy, which can fluctuate based on the performance of the underlying investments.

Maintaining a separate account is essential for variable life insurance products because it helps ensure that the policy's cash value and death benefit can vary according to investment performance, providing policyholders with the potential for growth linked to the market. This distinction also serves to protect the policy's assets from the general financial obligations of the insurance company, thus providing a clearer representation of the policy's value based on the actual investments made.

Understanding this separation of accounts is crucial for policyholders, as it underscores the investment nature of variable life policies compared to traditional whole life policies, which have fixed values determined by the insurer's general account investments.