What determines the policy value of variable life policies?

The policy value of variable life policies is primarily determined by the offer price at the time of valuation. This is because variable life insurance policies are linked to the performance of underlying investment options, such as mutual funds, that the policyholder can choose from. The value of the policy fluctuates based on the net asset value of these investments at the time of a given valuation, which is effectively the “offer price.”

As investments in variable life insurance are subject to market conditions and the performance of the selected funds, the offer price plays a critical role in reflecting the current market value of the policy. Since the policyholder has the potential to choose where to allocate their premium payments within a range of investment options, the policy value will directly correspond to how those investments are performing at the time of evaluation.

Other options do not capture this dynamic accurately: market conditions at the time of purchase affect investment performance but do not determine policy value; guaranteed dividends are not a defining feature of variable policies since they do not guarantee a return like traditional whole life policies; and while the overall performance of the insurance industry may impact the availability of products and pricing, it does not directly dictate the specific value of an individual variable life policy.