What is true regarding risks of investing in variable life funds?

Investing in variable life funds inherently involves a range of risks and potential rewards, particularly concerning equity investments. The correct response highlights that high equity investments can indeed lead to greater risks but also offer the possibility of higher returns compared to more traditional investment products, such as whole life insurance, which typically provide lower returns with less risk.

Variable life insurance ties the policy's cash value and death benefit to underlying investment funds, which can include stocks and bonds. When equity investments are involved, they can experience significant price volatility, resulting in fluctuations in cash value. However, the potential for substantial long-term growth through higher returns is a significant advantage of equity investments compared to conservative or guaranteed instruments.

Therefore, policyholders who are comfortable with a certain level of market risk may find that high equity investments within a variable life insurance policy can yield better outcomes over time, aligning with the statement that these investments can offer higher returns alongside increased risks. This balancing act between risk and reward is a fundamental principle in investment strategy, especially in the context of variable life insurance.