What is an investment performance risk in Variable Life Insurance?

Investment performance risk in Variable Life Insurance specifically refers to the possibility that the underlying investments, such as stocks or bonds, may not achieve the expected returns. Investors in variable life insurance policies allocate their premiums to a range of investment options, and the value of the policy's cash value and death benefit fluctuates based on the performance of these investments.

This risk is particularly pertinent because policyholders typically have limited control over how the investments perform. If the selected investment options underperform, the cash value of the policy may decrease, potentially leading to inadequate funding for future needs or reduced death benefits. Understanding investment performance risk is crucial for policyholders to make informed decisions about their investment allocations within a variable life insurance policy.

The other options refer to different aspects of risk associated with variable life insurance but do not directly capture the nature of investment performance risk. High premiums relate more to the cost of the insurance rather than the investment performance itself. The risk of fee increases relates to administrative costs and charges associated with the policy, and the risk of losing the entire cash value pertains to policy lapse scenarios rather than the direct performance of the underlying investments.