Despite all the violent rollercoaster bouncing around in the equity markets today, the most volatile and temperamental investment vehicle in the fi nancial services world is still the variable life insurance policy. Not only are these contracts linked to the stock market according to the wishes of the client or advisor (the subaccounts are basically mutual funds inside the policy wrapper), but all market volatility is greatly magnifi ed by the fact that every up and down also determines the cost of insurance within the policy. If the market turns bearish, the amount at risk--the difference between the face amount and the value of the accounts; in other words, the amount the insurance company would have to pay out of pocket if the policyholder died--goes up, meaning the cost of covering that extra amount goes up too. Imagine that you have a term policy whose face amount goes up whenever the market goes down, and you have to liquidate your stock positions at a loss to pay the increased premium.

Sleight of Hand

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