In the context of variable life insurance, what does the term 'bid-offer spread' refer to?

The term 'bid-offer spread' in the context of variable life insurance refers to the difference between the purchase price (offer price) and the sale price (bid price) of the investment options within the policy. This spread is a key factor that affects the overall return on investment for the policyholder because it represents a cost associated with buying and selling the underlying assets in the policy.

When policyholders invest in a variable life insurance policy, their premiums are allocated to various investment options, such as stocks and bonds. The bid-offer spread shows how much more it costs to buy into an investment compared to what you receive when selling it. A wider spread usually indicates higher transaction costs, which can impact the policyholder's returns over time.

Understanding the bid-offer spread is essential for policyholders as it can significantly influence the performance of their investment component, ultimately affecting the cash value and death benefit of the variable life insurance policy.