What effect does the investment strategy of Variable Life insurance have on cash value?

The investment strategy of Variable Life insurance has a significant impact on the cash value because the policyholder can allocate premiums among various investment options, such as stocks and bonds. The performance of these investments directly affects the cash value of the policy. When the investments perform well, the cash value can increase; conversely, if the investments perform poorly, the cash value may decrease.

This characteristic is what differentiates Variable Life insurance from other types of life insurance policies, such as Whole Life, where the cash value accumulation is more stable and guaranteed. In Variable Life insurance, there is an inherent risk-reward relationship because the policyholder has the potential to benefit from upswings in the market while also facing potential losses during downturns, which directly influences how much cash value accumulates over time.