What is a key characteristic of a variable life insurance policy?

A key characteristic of a variable life insurance policy is that the cash value can fluctuate based on investment performance. This type of policy allows policyholders to allocate a portion of their premium payments toward various investment options, such as stocks or bonds. The cash value grows or contracts depending on how well these investments perform; thus, it offers potential for greater returns compared to traditional whole life policies, which typically have a guaranteed cash value.

Additionally, because of this investment component, the death benefit can also vary. While the policyholder can select the amount of death benefit, it is subject to change alongside the cash value, making the policy dynamic in nature. This aspect distinguishes variable life insurance from other types, where returns and death benefits are more predictable and stable.