What is the primary function of a variable life insurance policy?

The primary function of a variable life insurance policy is to adjust the death benefit according to market performance. This type of policy combines life insurance protection with an investment component, allowing policyholders to allocate their cash value among various investment options, such as stocks and bonds. As the chosen investments perform, the cash value of the policy can increase or decrease, impacting the overall death benefit provided to beneficiaries.

This variability reflects the performance of the investment choices made by the policyholder, which means that during times of market gain, the death benefit can rise, and conversely, it may decrease if the investments perform poorly. This dynamic nature differentiates variable life insurance from whole life policies, which typically provide fixed death benefits and guaranteed cash value growth.

Understanding this aspect is crucial, as it highlights the investment risk involved with variable life policies and the potential for greater rewards, making them suitable for individuals comfortable with market fluctuations.