What is the impact of market volatility on Variable Life Insurance policies?

Market volatility significantly affects Variable Life Insurance policies because these policies offer both a death benefit and a cash value component that is tied to the performance of underlying investment accounts. Unlike Whole Life Insurance policies, which typically have guaranteed cash values and stable growth, the cash value in Variable Life Insurance can fluctuate based on market conditions.

When markets are volatile, the investments may perform well or poorly, causing the cash value of the policy to increase or decrease correspondingly. This means that the cash value is subject to investment risks, and as a result, the death benefit can also change. If the cash value falls significantly, it could impact the overall policy value and the death benefit, which are directly influenced by the account's performance.

Understanding this link between market performance and policy benefits is crucial for policyholders, as it indicates that their investment decisions, and the inherent risks associated with them, directly influence their potential financial outcomes over time.