Final answer:
In Variable Life Insurance, the investment risk is shifted to the policyholder who then becomes responsible for the fluctuations in policy value due to market changes. Throughout one's life, it is recommended to adjust investment risk, accepting more risk during early career stages and reducing it as one nears retirement.
Step-by-step explanation:
During Variable Life Insurance, the investment risk is shifted to the policyholder. Unlike traditional life insurance (cash-value/whole life insurance), which has a guaranteed death benefit and a cash value that can serve as a savings account, variable life insurance includes an investment component where the cash value is invested in various instruments like stocks and bonds. As a policyholder, you assume the risk of investment, meaning that the value of your policy could increase or decrease based on the performance of the investments chosen.
Investment Risks with Age
It is often suggested that throughout your life, your investment risk level should change. In the early part of your career, your risk level can be higher because you have more time to recover from potential losses. As you approach retirement, it is generally advisable to reduce your investment risk to preserve capital.