The Risk & Return of Variable Insurance Products Table of Contents 



What is Risk? 
1 
What is Risk Tolerance? 
2 
Time Horizon 
2 
Investment risk 
4 
Inflation Risk 
4 
Protection Against Inflation 
5 
Diversification 
7 
Risk reduction 
7 
Measuring Risks 
7 
Alpha & Beta 
8 
Lifecycle Beta 
8 
Loss Frequency 
9 
Severity 
9 
Variation 
9 
Measuring Risk Further 
9 
Probability distribution 
9 
Expected Rate of Return 
10 
Standard deviation 
10 
Maximum Possible & Probable Loss 
10 
Living with Risk & Return 
11 
Interest Rate Risk 
11 
Value risk 
11 
Call risk 
12 
Business Risk 
12 
Diversifiable risk 
13 
Credit Risk 
13 
Market Risk 
13 
What is Total Risk? 
14 
Liquidity Risk 
14 
Portfolio Risk 
16 
Covariance & Correlation Coefficient 
16 
Efficient Portfolios 
17 
Asset Allocation 
18 
Guidelines for Asset Allocation 
19 
Expected Return 
20 
How Much Return is Required? 
20 
CAPM 
20 
Treating Risk 
20 
Two Basic Methods 
20 
Risk Control 
21 
Risk Financing 
21 
Risk Control Alternatives 
21 
Risk Avoidance 
21 
Combination, Segregation 
22 
Loss Prevention & Reduction 
22 
Noninsurance Transfers 
23 
Risk Financing Alternatives 
23 
Risk Retention 
24 
Risk Transfer 
25 
Hedging contract, neutralization 
25 
Holdharmless agreement 
25 
Law of Large Numbers 
27 
Law of averages 
27 
A Large Group of Homogeneous 
29 
The Loss Produced by Peril Must 
29 
The Occurrence of the Loss Must 
29 
The Loss Must be Large Enough 
29 
Affordable Premium Costs 
29 
The Chance of loss must be calculable 
29 
The Peril Must be Unlikely to 
30 
Sales Practices 
30 
NAIC Section 6. Duties of Insurers and Producers 
31 
Care Obligation 
31 
Product Replacement with Best Interest in Mind 
32 
Full Disclosure 
33 
Disclosure Obligation 
34 
Conflict of Interest Obligation 
35 
Documentation Obligation 
35 
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