Texas Life Agent Practice Exam

Which statement is NOT true about variable products sold in the state?

1. Insurers invest the customer's premiums in their general account

2. They are subject to the same regulations as fixed products

3. They may offer investment options to policyholders

4. They have the potential for higher returns compared to traditional policies

The correct answer is: Insurers invest the customer's premiums in their general account

The statement that insurers invest the customer's premiums in their general account is not true for variable products. In the case of variable products, the premiums paid by policyholders are typically allocated to separate accounts, which are designed for investment purposes. This allows policyholders to choose from various investment options, such as mutual funds or bond portfolios, that carry different levels of risk and return potential. The other statements are true regarding variable products. They may offer investment options to policyholders, allowing them to take advantage of potential market gains. Compared to traditional fixed products, which generally provide guaranteed returns, variable products can offer the potential for higher returns, although they also come with increased risks. Furthermore, while variable products are indeed regulated, they are subject to different rules and regulations than fixed products, which is significant to understand in the context of insurance regulation. Such distinctions underscore the unique nature of variable products and why the correct answer highlights the misconception regarding how the premiums are invested.