In terms of liquidity, how does a secondary market for Variable Life Insurance benefit policyholders?

The correct choice emphasizes the role of a secondary market in enabling policyholders to convert their variable life insurance policy's value into cash. This liquidity feature is crucial because it provides financial flexibility to policyholders who may need access to funds for various reasons, such as paying for unexpected expenses, funding education, or making investments.

In a secondary market, policyholders can sell their existing policies to third parties, allowing them to receive a cash payout based on the policy's value rather than waiting for the death benefit or surrendering the policy. This option can be particularly beneficial for those who find themselves in a situation where the policy is no longer needed or where immediate cash flow is required.

This liquidity is distinct from other options, such as investing in other financial instruments or enhancing tax advantages, which do not directly address the immediate cash accessibility provided by the secondary market. Similarly, while higher death benefits may be advantageous, they do not contribute to the liquidity of a policy that a secondary market directly offers, making the conversion of policy value into cash the most relevant benefit in this context.