Which statement is true about variable life insurance policies?

Variable life insurance policies are designed to allow policyholders to invest the cash value of their policies in various investment options, such as stocks, bonds, or mutual funds. The key feature of these policies is that the cash value and death benefit can fluctuate based on the performance of the investments chosen by the policyholder. Hence, premiums paid into a variable life insurance policy are used to purchase units in these investment options, and the value of these units will change according to the market price of the underlying investments.

This dynamic is essential to understanding how variable life insurance works. The potential for the cash value to grow significantly over time due to favorable investments is a central appeal of this insurance type. While this offers the possibility for higher returns, it also carries risks, as the market can decline and affect the policy’s cash value and death benefit.

The other options do not accurately reflect the nature of variable life insurance. While some forms of insurance may provide guaranteed minimum benefits or fixed premiums, variable life insurance does not guarantee these features, as the investment performance and associated risks are inherent in its structure.