Which of the following statements about investment returns under variable life insurance policies is true?

Investment returns under variable life insurance policies fluctuate according to the rise and fall of market prices. This characteristic is fundamental to the nature of variable life insurance products. Policyholders have the ability to choose how their cash value is allocated among various investment options, such as stock, bond, and money market funds. Because these investments are tied to market performance, the returns can vary significantly based on how the underlying assets perform.

This variability allows for the potential of higher returns over the long term compared to more traditional whole life insurance policies that offer fixed returns. However, this also introduces a higher level of risk, as returns may decrease if the markets perform poorly. Thus, understanding that the value can increase or decrease based on market conditions is crucial for anyone investing in variable life insurance.