A Separate Account is a type of investment account used in variable life insurance policies, where the insurer keeps the policyholder’s premiums in a distinct fund. This account allows policyholders to choose how their cash value is invested, often in various market options like stocks and bonds. Understanding separate accounts is crucial for those with variable life insurance, as the performance of these investments directly affects the policy’s cash value and death benefit.
By having a separate account, policyholders can potentially earn higher returns based on their investment choices, but they also face greater risks associated with market fluctuations.