L&HNationalmedium
Interest-sensitive whole life (also called current-assumption whole life) differs from traditional ordinary whole life primarily because:
AIt invests the policy's cash values in a menu of separate-account subaccounts that are chosen, allocated, and directed entirely by the policyowner
BIt carries no guaranteed cash value and no guaranteed minimum death benefit, with both elements varying directly with the insurer's experience
Its premium and/or cash value reflect the insurer's current mortality and interest experience rather than locked-in guaranteed assumptions
DIt is automatically classified as a Modified Endowment Contract under IRC §7702A regardless of how or over what period premiums are paid
Why this is the answer
Traditional whole life locks in mortality, interest, and expense assumptions at issue using conservative long-term tables; participating versions return excess experience as dividends. Interest-sensitive whole life keeps the fixed-premium / fixed-face whole life look but uses current-assumption pricing — when carrier portfolio yields rise, premiums can be redetermined downward (or cash values upward); when assumptions deteriorate, premiums can rise (with policyowner notice) up to the contractual maximum guaranteed premium. The death benefit and a minimum cash value remain guaranteed.
Studying for the Life & Health exam?
This question comes from our L&H bank. Take a free practice test — no signup.