What are the fundamental characteristics of Variable Life insurance policy?

Variable Life insurance policies are designed to offer policyholders the ability to allocate their cash values among a variety of investment options, which can include stocks, bonds, and mutual funds. This characteristic allows the cash value of the policy to fluctuate based on the performance of the underlying investment funds. As a result, the policy’s death benefit and cash value can increase or decrease, depending on the success of these investments. This link to an investment fund's performance is a defining feature of Variable Life insurance, setting it apart from traditional life insurance products that do not offer this flexibility or market exposure.

In contrast, the other choices do not accurately reflect the nature of Variable Life insurance. For instance, guarantees on returns typically align with whole life policies rather than Variable Life policies, which are inherently tied to investment performance and thus do not assure a fixed return. Additionally, while Variable Life insurance can be a part of a diversified investment strategy, it does involve market risks, meaning there is a potential for loss in value. Lastly, it is not classified as a fixed income investment since it does not offer stable returns and can fluctuate significantly based on market conditions.