Final answer:
Variable life policies have a guaranteed minimum death benefit, which is the policy face amount, but the cash value is not guaranteed since it is tied to the separate account. Therefore, the death benefit will increase or decrease over time according to the investment performance.
Step-by-step explanation:
Variable life policies have a guaranteed minimum death benefit, which is the policy face amount, but the cash value is not guaranteed since it is tied to the separate account. Therefore, the death benefit will increase or decrease over time according to the investment performance.
When you have a variable life policy, a portion of your premium payments goes towards the cash value, which is invested in a separate account. The cash value fluctuates based on the investment performance of the separate account. The death benefit, on the other hand, is the guaranteed minimum amount that will be paid out to the beneficiary. Just as in a pension with a fixed income known as a "defined benefits" plan, where retirees may face the issue of inflation eroding their purchasing power over time, variable life policies are affected by market performance, which could either enhance or diminish the policy's value in the long run. The cash value accumulated in a whole life insurance policy serves a similar purpose to an individual's account, which can be used in various ways, including being tied to more aggressive investments that can fluctuate with market conditions.