For a person with a variable life insurance policy, which risk is of greatest concern?

A variable life insurance policy combines a life insurance component with an investment component, meaning that the cash value and death benefit can fluctuate based on the performance of the investment options chosen by the policyholder. Market risk is of greatest concern in this context because it directly affects the value of the investments held within the policy. If the market performs poorly, the cash value of the policy can decrease, potentially leading to a lower death benefit, which is a critical element of life insurance.

Given that the policyholder has some control over the investment choices, they are inherently exposed to the risks associated with fluctuations in market prices, which can be significant and unpredictable. Therefore, understanding market risk is essential for anyone with a variable life insurance policy, as it influences both the growth of the policy's cash value and the ultimate outcome of the insurance coverage. Other risks, such as credit, interest rate, and liquidity risks, while relevant to financial products in general, do not directly impact the variable nature of the cash and death benefits in the same way that market risk does.