Final answer:
Variable Life Insurance policies have a cash value component without guaranteed returns, as they are subject to market risks. While there is often a minimum guaranteed death benefit, the investment portion's performance depends on market conditions and can affect premiums and payouts.
Step-by-step explanation:
When it comes to a Variable Life Insurance policy, it is a type of cash-value (whole) life insurance where the policy has both a death benefit and an investment component, known as the cash value. This policy allows the policyholder to invest the cash value into various investment options, which can lead to potential growth over time. However, it is important to note that these policies do not provide guarantees related to the investment component. While the death benefit may have a guaranteed minimum, the cash value's performance is subject to market fluctuations and investment risks.
Therefore, there is an inherent risk that the cash value might not grow as expected, which can affect the eventual payout or premiums. The cash value that accumulates in a Variable Life Insurance policy can serve as an account for your use, but its performance is not guaranteed. As with any insurance product, the fundamental law of insurance must hold true: over time, the collective premiums paid by policyholders must be enough to cover claims, administrative costs, and provide profit for the insurance company.
Safeguards and minimum death benefits notwithstanding, the investment risks with Variable Life Insurance cannot be entirely mitigated, and thus the cash value comes with no guaranteed return.