In Variable Life insurance policies, which statement is accurate?

In Variable Life insurance policies, the correct statement emphasizes that premiums contribute to a variable investment component, which is represented by units. When a policyholder pays premiums, they are essentially buying a certain number of units of the underlying investment options chosen within the policy. These options can vary in performance and value based on market conditions.

This feature allows the policy value and potential returns to fluctuate, providing a level of flexibility and growth potential not found in traditional whole life insurance. It is important to note that while premiums may not purchase a fixed number of units in a standard sense, they are used to allocate funds into the variable investment components that can change in value. The actual number of units purchased will depend on the current value of the units at the time of premium payment.

Understanding this mechanism is crucial for policyholders, as it underscores the investment risk associated with Variable Life insurance policies. It differentiates them from more traditional life insurance products that may have guaranteed returns.