Final answer:
A variable life insurance policy owner can direct their investment funds into various options such as mutual funds. These funds are professionally managed, giving the policy a potential for growth while also acting as a cash-value account, with the investment risk tailored to the individual's life stage and financial goals.
Step-by-step explanation:
A policy owner of variable life insurance can indeed direct their investment funds. Variable life insurance is a form of cash-value life insurance that combines death protection with a savings account feature which includes various investment options. As an owner of such a policy, you can allocate the cash value portion to different investment options, often including mutual funds.
Mutual funds themselves are investment vehicles that are professionally managed and can be diversified across a range of sectors, such as stocks in Indonesian companies, large manufacturing bonds, or biotechnology stocks. This provides the policy owner an opportunity to potentially increase the value of their life insurance policy based on the performance of these investments. However, it's important to note that investments in variable life insurance are subject to market risks, including the possible loss of principal.
The cash accumulated in a variable life insurance policy can act as an account for personal use, illustrating its dual nature as both a death benefit and a potential source of funds.
Moreover, one of the advantages of investing through a variable life insurance policy is the professional management of the invested funds, similar to mutual funds. This takes off the burden of active management from the policy owner, while still allowing them to direct the investment according to their risk tolerance and financial goals.
It's crucial for policy owners to consider their investment risk level throughout different stages of life. Early in one's career, a higher risk tolerance might be more acceptable due to a longer time horizon for investments to grow. But as retirement nears, a more conservative approach is often advisable to protect the accrued savings.