Which of the following is a common risk associated with Variable Life Insurance policies?

Variable Life Insurance policies are uniquely tied to the performance of underlying investment options, such as stocks and bonds. This investment linkage means that the policyholder's cash value and death benefit can fluctuate based on the market performance of these investments. This characteristic inherently exposes policyholders to market risk, which refers to the potential for loss due to changes in market conditions. Factors such as economic downturns, changes in interest rates, or fluctuations in the stock market can impact the value of the investments within the policy, leading to variations in cash value and death benefits.

In contrast, other risks like interest rate risk primarily affect fixed-income investments and may not apply directly to variable life insurance, since those policies are invested in market securities rather than fixed-rate products. Credit risk relates to the chance that the issuer of an investment might default, which does not encompass the broader market dynamics that influence variable life policies. Inflation risk, while relevant to all types of investments, does not specifically relate to the structure and risk profile of variable life insurance policies in a direct manner. Therefore, market risk is the most pertinent and significant risk associated with Variable Life Insurance policies.