Which aspect of variable life insurance presents the most risk to the policyholder?

Variable life insurance is a unique product that combines life insurance with an investment component. The most significant risk to the policyholder in this type of insurance comes from variable investment performance. Unlike traditional whole life insurance policies, which have predictable and guaranteed growth of cash value, variable life policies allow policyholders to allocate their cash value among a variety of investment options, typically in a range of mutual funds.

The value of these investments can fluctuate dramatically based on market conditions. Therefore, if the investments perform poorly, the cash value of the policy and potentially the death benefit can decrease. This means that the policyholder carries the risk associated with investment performance, which can result in having inadequate funds to meet needs or expectations in the future.

In contrast, fixed death benefits, guaranteed premium payments, and cash value protection all provide a level of stability and assurance to the policyholder, reducing uncertainty in the policy’s performance. Thus, the investment aspect is the primary source of risk in variable life insurance, making variable investment performance the correct answer for identifying what presents the most risk to the policyholder.