How does investment income affect the cash value in Variable Life Insurance?

In Variable Life Insurance, the cash value is linked to the performance of the investment options chosen by the policyholder, which typically include stocks, bonds, and mutual funds. Since these investments can experience fluctuating values, the investment income derived from them can either increase or decrease the cash value of the policy.

When the underlying investment performs well, the cash value can increase, reflecting the gains from those investments. Conversely, if the investments perform poorly, the cash value may decrease, as losses in the investment account are reflected in the policy’s cash accumulation. This variability is a key characteristic of Variable Life Insurance, distinguishing it from other life insurance policies with guaranteed cash values.

The nature of the investment options allows for the potential of higher returns but also implies a risk of fluctuating values based on market conditions. Therefore, the correct understanding is that investment income can indeed lead to increases or decreases in cash value, aligning with the realities of investing in a variable life insurance product.