What can cause the cash value of a variable life insurance policy to fluctuate?

The cash value of a variable life insurance policy can fluctuate primarily due to the market performance of the chosen investments, such as stocks and bonds. In a variable life insurance policy, the cash value is linked to the performance of the underlying investment options selected by the policyholder. When these investments perform well and gain value, the cash value of the policy increases. Conversely, if the investments decline in value, the cash value decreases. This inherent connection to market performance is what makes the cash value of variable policies unique compared to traditional life insurance policies, where the cash value typically grows at a stable, guaranteed rate.

While policyholder withdrawals and administrative fees can impact the overall value of the policy, they do not directly affect the cash value's connection to investment performance, which is the core of what causes fluctuations in variable life insurance. Changes in interest rates are more relevant to other types of policies rather than the performance-based nature of variable life insurance.