Fantastic Life Insurance Company guarantees its policyowners a rate of return of 3.5 percent on assets underlying the reserves in its policies. However, it earns 7.5 percent on those assets. In a case such as this, more favorable earnings than those guaranteed can affect different policies in different ways. Explain the impact of these favorable earnings on the named features (e. g. cash value, face value, dividends, etc.) of the following policies:

Cash value of ordinary life insurance.

Face value of universal life insurance, Option A. (Assume a face value of $100,000 and a cash value of $20,000.)

Face value of term life insurance.

Dividends on an ordinary life insurance policy that had been in effect for forty years.