What is a crucial factor that defines variable life insurance?

Variable life insurance is primarily defined by its nature of allowing policyholders to invest a portion of their premiums into various investment options, such as stocks or bonds. This investment component means that the cash value of the policy can fluctuate based on the performance of the chosen investments. Because of this variable aspect, policyholders have the potential to increase their cash value significantly over time if their investments perform well, but they also assume the risk that the cash value may decrease if the investments do not perform well. This differentiates variable life insurance from other types of life insurance, which often have fixed premiums and guaranteed death benefits without the investment aspect.

The other options do not accurately capture the defining feature of variable life insurance. Fixed premiums and guaranteed payouts relate more to whole life or term life policies, while a focus solely on term coverage does not apply to variable life, which serves both investment and insurance purposes. Similarly, tax-exempt benefits are a broader aspect of life insurance in general and not a specific factor that distinguishes variable life insurance. Therefore, the key defining factor of variable life insurance is indeed its variability in cash values and investment opportunities.