In variable life insurance, who bears the investment risk?

• A. The insurer.
• B. The policyholder.
• C. The government.
• D. The beneficiary.

Answer: (B)

In variable life insurance, the investment risk falls on the policyowner. The premiums are directed into a separate account comprising market-based investments chosen or allocated by the policyowner. The policy’s cash value—and any portion of the death benefit linked to those investments—fluctuates with investment performance. If the investments perform well, the cash value can grow and the death benefit can rise beyond a guaranteed level; if they perform poorly, the cash value can decline and the death benefit may be limited by that performance. The insurer does guarantee a minimum death benefit, but the up-and-down fate of the account is borne by the policyowner. The government and the beneficiary do not bear this investment risk.