In Variable Life Insurance, what happens if the cash value decreases significantly?

In Variable Life Insurance, if the cash value decreases significantly, the death benefit is adjusted accordingly. This occurs because the death benefit in a variable life policy is typically composed of two parts: a minimum guaranteed amount and a varying amount based on the policy's cash value performance. Thus, if the cash value drops, the overall death benefit may also decrease, reflecting the reduced value of the investment component of the policy.

This characteristic of variable life insurance allows policyholders to benefit from potential growth in the cash value when the underlying investments perform well. However, it also means that if those investments perform poorly and the cash value declines, the death benefit will be impacted, which maintains the balance of risk between the insurer and the policyholder.

In contrast, the other options do not accurately describe what occurs in this scenario. The policy is not automatically canceled as long as premiums are paid; cash value can indeed decrease due to market performance; and premium payments are not necessarily required to increase solely due to a decline in cash value.